There are several important reasons why having good credit is beneficial to borrowers when it comes time to purchase a home. Above all else, you must have a decent credit score in order to be approved for a mortgage by most traditional lenders. And the better your credit score, the better interest rate you’ll be able to obtain.
Typically, if your Beacon Score is above 600, you’ll get approved for a mortgage – assuming other important criteria is met. But if you’re barely over 600, you won’t qualify for the best available rates. Ideally you should try to get a credit score above 700 to qualify for the best available mortgage rates. Following are some important steps that can help you obtain the best credit scores and, ultimately, the best interest rates:
- Pay all bills on time, even when just making minimum payments. Personal loans, lines of credit and credit cards all require that you make the minimum agreed payment on a specific date each month, but it’s always best to go above and beyond this payment requirement.
- Keep your balances on revolving credit at no more than 50% of the approved limit. Revolving credit such as credit cards and lines of credit enable you to re-advance funds after you have paid down the balance. Still, to achieve the best credit score, try to stay away from the limit for extended periods. If you consistently have a balance close to the limit, this will negatively impact your credit score.
- Don’t cancel old credit cards and lines of credit. Many people have a tendency to want to close any revolving credit lines that they don’t use. But in order to build your credit, it’s advisable not to do so because the more credit history you have the harder it will be to hurt your credit if you accidentally miss a payment. The key here is to use your credit responsibly.
- Don’t apply for every credit card that comes in the mail. Credit card companies are always offering better deals, better incentives to sign up for new cards and automatic points balances for new customers. Be aware that every time you even sign up for a credit card, an inquiry shows up on your credit bureau. If there are enough “hits” on your bureau, it may negatively impact your credit score.
- Trend down your overall credit balances. Credit bureaus keep track of all of your payments and balances from your past to show a “trend”, which indicates how responsible you are with your credit card and, therefore, the risk associated with lending you money. If you show a consistent trend of reducing your balances this shows you’re paying down more than your borrowing.
Mill, Brian. (2012, January 20). Five Ways to Boost Your Credit Score. Sun Times Real Estate This Week. Contact Brian Mill @ Dominion Lending Centre in Port Elgin for more information!
We hope you find this article helpful! You may also like: 7 Tips to get Approved for a Mortgage