Credit & mortgages: a mystery?
Unfortunately a lack of basic financial knowledge can be the difference between getting a mortgage at a great rate or having a mortgage with a “B” lender where you end up having to make much a higher payment.
Your Beacon Score, which is shown on your credit report, indicates to a mortgage lender the probability of whether you will successfully make your mortgage payments on time. Beacon scores can range from a low of 300 up to a high of 900 which is the highest possible score. A good credit score would be in the mid to upper 600’s and a credit score below 620 could prevent you from obtaining a mortgage a bank.
So what makes up your credit score?
- 35% is for late payments, bankruptcies, collections and judgments
- 30% is for current debts
- 15% is for how long accounts have been open and established
- 10% is for the type of credit, such as credit cards or personal loans
- 10% is for new credit enquiries
Here are some examples of the common mistakes that homeowners or potential homeowners make that can result in a poor credit rating.
Chronic late payments.
Do not ignore the small stuff. No matter what the size all bills must be paid on time, including your cell phone.
Maxing out your credit cards.
You should not exceed over 50% of the limit on your card. Even if you pay off the balance every month, it will still negatively affect your Beacon Score. Spread your spending out over a few cards.
Do not over apply to creditors and lenders.
Don’t fill out applications at car dealerships if you are shopping for a car. Don’t fill out the credit card application at the booth in the mall or the airport. Every time you fill in an application they will check your credit.
A great tip for managing your credit is to pull your own credit report at least a couple of times a year. It is the responsibility of a consumer to correct any errors and it takes a long time for reporting to be amended should there by an error.
If you need to repair your credit the best tactic for improving your credit score is to consolidate debt. Taking out a short term second mortgage to pay off all debt will basically wipe the credit clean so it is positive. By allowing two or three months for the reporting to go through to the credit bureau a few times, the report will start to show a higher credit score and you will now be considered for more competitive interest rates at an ‘A’ lender.
There are some easy steps that can be taken to improve your overall financial picture and ensure that you are getting the best terms and rates whether you are renewing your current mortgage or looking to purchase your first home.
Moving from bruised credit to “A” credit simply takes time and sound advice. A great rate is within reach. Give me a call if you would like some advice and assistance to improve your credit score.
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