Nobody wants to fall in love with a home they can’t afford, and not satisfying the qualifications for a mortgage can be really disappointing. It can be difficult, but instead of being upset, this might be a good opportunity to work on your credit. However, an important part of improving your credit is understanding what exactly a lender is looking for. Fortunately, this is pretty simple. Here are the basic basic factors that make up your credit score.
Payment History.
Your lender will be checking whether you pay your bills on time every time, and whether you have any bankruptcies, settlements, etc against you. This is the single most important aspect of your credit score. If your payment history is a bit up and down, it may take you some time (months or even years) to improve your score. Keeping on top of your finances and consistently paying your bills on time is a mortgage approval must.
Amount Owed.
How much total do you owe? When you’re applying for a mortgage, make sure that your debt never goes over a third of your monthly income. You’ll want to be consistently keeping debt below 33% for a couple months at least. However, in order to prove that you pay back what’s loaned to you on time, you do need to have picked up and repaid at least some debt. Less debt is better than more, but zero debt won’t provide your lender with the information they need. This is the second most important aspect of your credit score.
Length of Credit History.
A lender is going to be interested in how long you’ve been using your credit cards and using your current accounts. A long history of paying off all your debts on time is best. However, a shorter length of time with an immaculate payment history will often function as well. While less important than payment history and the amount you owe, it’s something to keep in mind. If you’re planning on buying a home in the next year or two and don’t have any credit history, you may want to open an account now.
New Credit & Types of Credit.
Your lender will check if you have a variety of credit types in use. Typical credit types include credit cards, store accounts, installment loans, and mortgages. This is a very small portion of your credit score, so if you’re only using one or two credit types don’t panic and open a new account because your lender will also be checking if you’ve opened any new accounts. Any recent additions are going to count against you, so it’s better to have just one type with a long history than three new, unproven credit accounts.
Keeping these four aspects in mind and being patient are the only things that will improve your credit score, but with time and dedication, you will see a clear improvement and qualify for the mortgage you want. Are you ready to buy a home in Calgary? I’m here to help! Contact me today.