How to Raise Your Credit Level in Order to Get a Mortgage
One of the key considerations mortgage lenders have when granting you a mortgage is your credit score. Before submitting an application for a mortgage, there are a number of ways to raise your credit score if it is low.
Reduce your debt, refrain from getting new credit, and maintain your current credit accounts active. Credit bureaus prefer to see a lengthy history of credit management done responsibly.
Close large-amount accounts
Numerous factors are taken into consideration by credit scoring systems, such as debt, credit utilisation, length of account opening, and the combination of revolving and installment loans (such as mortgages, which are set amounts borrowed and repaid in regular installments) (credit cards). The quickest approach to raising your score is to pay off any high-balance credit cards. Revolving credit card debt can also be substituted with installment loans, including student or auto loans, because scoring algorithms tend to treat installment loans more favourably than credit card debt.
Refrain from applying for new credit because every query you make, be it for a credit card, loan, or phone, lowers your score. This is seen by lenders as a warning sign that you are looking for debt that you might not be able to pay back, and it begs the question of why your previous credit was so poor to begin with. Rather, concentrate on debt repayment and reporting inaccuracies on your credit report.
Don't create new credit accounts.
It's crucial to maintain open credit accounts, particularly if you have balances on them, but avoid applying for new credit right before or during the mortgage application process. This is due to the fact that each time you ask for credit, your credit report receives a hard inquiry, which has the potential to reduce your score.
Additionally, a flood of credit applications can appear desperate and indicate that you are not handling your debts correctly, which is something that lenders dislike to see. Your credit utilisation ratio, which accounts for 10% of your score, may suffer from new debt.
Even if the debt on a credit card you've had for a while has been paid off, closing the account might still hurt your credit. This is because it can lower your credit's average age, which affects your score as well. This is because a lengthy history of well-maintained accounts is what lenders prefer to see. Nevertheless, you ought to terminate an account only if it's no longer required.
Make sure your accounts are up-to-date.
Lenders use a borrower's creditworthiness—which is mostly based on their FICO score—to decide whether to approve or deny a mortgage application. Thankfully, there are actions you can take to raise your mortgage credit score and possibly get better conditions on your loan.
According to McClary, maintaining your accounts in good standing can raise your credit scores by demonstrating that you are handling your debt sensibly. This entails making timely payments and preventing missed ones. Try to pay off any past-due balances as soon as you can before submitting an application for a mortgage.
Before submitting a mortgage application, it's a good idea to obtain a free Experian credit report to discover what information is affecting your score. You can directly dispute unfair or erroneous information with the credit bureaus. Your scores could rise dramatically if you can rectify a misreport. When a creditor offers to undertake a "rapid rescore" for applicants, for example, or when you're trying to make a deadline for a mortgage application, this step might be really useful.
Maintain a low credit utilisation ratio.
Your credit utilisation ratio, which shows how much of your available credit you use, is one of the elements that lenders look at to determine if you can manage debt responsibly. It is advised by experts to maintain your utilisation below 30% in order to improve your credit scores. This can be accomplished by paying off credit card debt on a monthly basis and refraining from creating new accounts, particularly ones that could result in hard requests to the country's credit reporting agencies.
Requesting an increase in the credit limit on your current cards is another method to enhance your credit utilisation ratio and can also help you boost your credit score. But keep in mind that requesting further credit will result in a hard inquiry being made on your reports. Furthermore, whereas a single hard inquiry won't harm your credit, several can. It's advisable to wait to ask for a limit increase until you are certain that you will be able to make monthly payments on schedule.
