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How to increase your credit score for a mortgage loan?

If you’re considering purchasing a home at some point in the near future it’s best to take a moment and make sure you check the credit scores prior to submitting the application forms.

Your credit score of yours plays an important role in the rate of interest you’ll pay when you’re applying for a mortgage. It’s not just for mortgages for homeowners, however; the same is true in the case of individual loans, credit cards and other forms of credit.

How do credit scores work?

how does credit score work
how does credit score work

Credit scores are crucial because it determines whether you are able to take out the contract for your mobile phone and also determine the interest rate you have to pay for your credit cards and it can either make or break your purchase of a property.

If you are applying for a mortgage the lender will ask one or more credit reference agencies to review your financial background to assist them in making an informed decision. A high credit score will increase your odds of being successful in your mortgage application However, a low credit score could mean an unsuccessful application or higher mortgage rates. So it is necessary to increase your credit score for mortgage loan.

Top 9 tips to increase credit score:

credit score for mortgage loan
credit score for mortgage loan

Now let’s dive straight into the main topic. Here we have some main tips and ideas to increase credit scores.

Continue making monthly debt payments on time:

Being punctual with your payments will be the most crucial action you can take to increase your credit score. This is because the history of your payments is 35 per cent in your FICO(r) score and is the most important factor in the calculation of a credit score. For lenders, the person’s ability to pay the payments on their credit cards is a sign that they’re competent in obtaining a loan and repaying back.

Moreover, your credit score isn’t just affected by your credit card debts. It is imperative to pay all of your bills on time. That includes all of your utilities as well as student loan debt, and any medical bills you may be facing.

Making a late payment or missing a payment late is more simple than you think. If your schedule gets a bit hectic or stressful, your credit card invoice or due date for a loan may quickly slip by. This is the reason experts suggest making use of automated payments or making an automatic transfer from your bank account to your bill. In this way, you won’t have to think about how to pay your bills. This lowers the risk that you’ll be liable for a missed payment, which may affect your score on credit.

See your credit report

A good way for you to learn about a credit scores is to examine them yourself. You can request your credit report from three credit reference companies ( Experian, Equifax and TransUnion).

Only both you as well as the agency that handles credit know about it. There are no negative consequences of conducting a credit check. Therefore, make sure you check it regularly and prior to making any major requests for credit.

Don’t open too many new lines of credit at the same time

FICO and VantageScore are based on the number of inquiries into credit (like requests for new financial services or credit increase limits) and the number of credit accounts that one opens. Each time you apply for a credit card or loan, the lending institution conducts a “hard” inquiry to your credit file, which “dings” your credit score and may temporarily reduce your score.

However, applying for multiple lines of credit in the same timeframe can result in a significant impact on your credit score. Therefore, ensure that if you choose to go ahead by submitting a credit request, it’s vital to your financial well-being. It is recommended to avoid opening new lines of credit until at minimum a couple of months prior to when you submit a mortgage application.

Remember that when you apply to get a loan, you should be strongly advised to look around for the most favorable rate by sending your pre-approval form to multiple lenders. That means they’re all taking a look at your credit report. With mortgages, however, you are able to have your credit report inspected multiple times without any further negative impact on your score so long as you’re within a 45-day period.

Certain lenders speed up the pre-approval and application process, allowing you to quickly identify where you stand. SoFi offers the mortgage application process entirely online and gives rapid pre-qualification. It also allows borrowers to speak with Mortgage Loan Officers to get some more specific information on the procedure.

Keep your credit utilization rate low

A credit utilization ratio refers to the credit limit you’ve used, divided by the credit limit you have available. For instance when you’ve spent $6,500 on a credit line with an available max credit amount of $12k then your credit utilization is 50 per cent. Experts advise keeping your utilization to below 30% and less than 10 per cent is better.

A great way to maintain a low utilization is to keep making timely monthly payments to the balances on your credit cards (while making sure that you keep your spending as minimal as possible, of course). If you’re unable to pay off your credit card every month in full it’s best to remain steady and patient with your monthly payment.

You might also think about (thoughtfully) opening an account that has a 0% APR initial period if you’re paying a large amount of debt from credit cards (as long as you’re not open to opening many new credit lines). These cards provide the possibility of an initial period of 12 months or more, during which you don’t have to pay interest on your monthly payment. You are able to transfer a balance to this card and then pay it off over the initial period.

Check any financial links to other people

Most people are unaware that opening a joint credit card with someone else could mean that their credit score may have an impact on yours. Be sure that you’re not financially connected to anyone else you should not be.

Financial links that are obvious could be a former partner however, many renters have shared accounts to handle household bills, which creates an additional link.

Register to vote

If you’re not registered to vote simply making a registration to vote can boost your credit rating of yours. It’s easy and can register online. The credit reference company Experian recently announced that if you’re registered to vote the lenders will likely think that this is a good indicator when applying for credit since they are able to more easily prove your identity. It’s an indication of stability.

Experian has discovered that having your name on the electoral roll for your current address could give you 50 points on the credit score. However, only 45 per cent of people are aware that having their name on the electoral rolls will have any effect on their credit score. For some, it could be the difference between a high and a great score. This could lead to higher rates on mortgages and credit cards.

Prove you can manage debt

If you’ve not ever borrowed money and you’re not able to repay it, you could be able to have a poor credit score due to not having demonstrated that you’re able to manage the burden of debt. In this case, then you need to apply for a credit line and ensure that you pay the balance in full each month.

It may take a couple of months but gradually your credit score will increase. A clear sign of an increase in your credit rating can be seen when a bank offers to increase the credit limits of your account.

But, be aware of your first credit card. Certain credit cards can charge an exorbitant rate of interest. Be sure to never borrow more than you are able to pay in full because accumulating debt on a credit card can harm your score on credit.

Be careful about applying for credit

Each time you apply for credit, whether it’s a credit card or cellphone contract or need to make monthly payments for car insurance such as a car insurance business will check your credit file before making an informed decision.

The inability to complete a lot of these requests in a short amount of time causes you to appear desperate for credit and can affect your credit rating. If you’re able, you ought to not make any credit application for at least six months prior to when you think you’ll need to apply for a mortgage.

For the majority of people, their mortgage is their most significant and least expensive debt obligation and their home is usually their biggest asset. This is why a mortgage plan is crucial. A well-designed mortgage plan can safeguard you from financial disaster, help you save thousands of dollars and also help you build your wealth in the long run.

With access to many of Canada’s top lending institutions We are able to offer any type of mortgage, such as refinances, purchases, debt consolidations, equity takeout’s renewals, mortgages for individuals who are self-employed. Contact us today to receive an instant quote and a summary of current market conditions impacting our mortgage industry!


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