Not sure what your credit score is? You're not alone. Less than half of Americans know the score that determines how much lenders are willing to loan them - and at what rates. Your credit score is a record of your debt history over time - the good, the bad, it's all in there for lenders to review. Although it takes time, the good news is there are steps you can take to improve your credit score and increase your chances of getting a mortgage loan at the best rate possible.
The first step to understanding your credit history is getting a copy of your report from each of the three major reporting agencies. Mortgage lenders use all three when reviewing a loan application.
When you apply for a mortgage loan, the lender will pull a credit report from the three major credit-reporting agencies. These agencies use a "scoring" system that weighs many variables to determine whether you (the borrower) will make on-time payments.
This information comes to the reporting agencies from retailers, public records, and sometimes credit applications and bank records. The scoring system analyzes patterns over time, with more recent payment and debit habits holding the most weight. These reports aren't always correct, so work with the credit-reporting agency to resolve any errors that may improve credit score.
The four main components of the credit-scoring system are
Keeping your credit history in check isn't a one-time deal - it's consistently doing the right things to maintain good credit. These four tips can help.
Only open the credit accounts you need most. Lenders typically view many credit applications as a sign of financial stress. And when you open a new account it actually lowers your credit score rating since it also lowers the average length of your account history.
Your credit history will show each time somebody requests your report and lenders may view it as a red flag if too many creditors request your records.
Make sure to pay your credit card debts, car loan payments and other bills on or before their due dates. Late payments decrease your credit score.
If you have outstanding loans or credit card debts, try to pay off as many as possible. The amount of debt you retain monthly reduces the ability for taking on more debt, such as a mortgage.