Applying for a mortgage is an unpleasant experience as it is. You don’t have to complicate the process further by applying with a bad credit score, as you’re likely to end up bearing heavy interest and stringent default penalties. This article will explain what a credit score is and how you can improve it before you apply for a mortgage.
WHAT IS A CREDIT SCORE?
In the simplest of terms, credit scores are an indication of a person’s creditworthiness. The better the score you have, the more creditworthy you are and lenders will be willing to extend you a loan. There is no unified scoring system and chances are you have dozens of credit scores. However, this isn’t something to worry about as there isn’t a universal algorithm that all companies use.
However, what is universal are all the factors that these companies take into account when calculating the score. Credit scores compute payment history on loans and cards, regular use of revolving credit, the duration the credit accounts have been open, the types of accounts you own and operate, and the frequency with which you apply for new credit.
Before you can improve your score, you first need to check what it is. You can contact your credit bureau for a credit report or check your credit score online. With these reports, you’ll also get details on the factors taken into account and how they’ve contributed to, or taken from, your credit score.
BE PUNCTUAL WITH PAYMENTS
Lenders look at your past payment schedule, and your compliance to it, when they’re reviewing your application for a loan. This factor also has an impact on your credit score. Paying bills on time is an indicator of your reliability as a borrower and is viewed positively when predicting the reliability of your future performance. So make sure you’re paying your bills on time.
BE SMART WITH YOUR CREDIT ACCOUNTS
You should only apply for a credit account if you really need it. Having more credit accounts doesn’t lead to a good “credit mix”, which isn’t even really a thing. The more open accounts you have, the worse it is on your credit score. Such activity is not viewed favorably and should be avoided.
However, if you’ve wavered in your commitment and already opened an account and haven’t used the card, then just keep it open and don’t use the card.
GET A DEBT CONSOLIDATION LOAN
This might be a bit extreme, but it is an effective way of improving your credit score. Owing money to multiple people isn’t viewed in the best light when it comes to credit scores. A debt consolidation loan is where you get a loan to pay off all your existing debt. The interest rates are usually high and having a bad credit score before you apply for one could result in a rejected application. However, there are several lenders, like Everyday Loans, which do consider applications even if your credit score isn’t the best.
This also helps you manage your debt since you’ll only have one payment to worry about instead of having to manage payments to ten different lenders.