What Is a Credit Report?
Your credit report is a compilation of your credit history, and it discloses information about any money you have borrowed and whether you have paid it back on time. Credit bureaus assign you a credit score based on this information, and your score helps lenders determine how risky it is to lend you money.
Credit scores usually go up to 850. A score of 700 or above is often considered good enough by most lenders to qualify for a mortgage and to get a good interest rate. Some mortgage programs accept homebuyers with credit scores of 600-700.
The good news is, if you have bad credit, it won’t be a problem forever. Credit reports only go back seven years. So if you went through a rough patch, got divorced or had other problems paying your bills on time, this information will eventually disappear from your credit report.
If you don’t want to wait for your score to improve on its own over time, you may want to take some steps right away to improve your credit. What can you do?
- Avoid making late payments. If you think you might have trouble remembering to make a payment on time, set up an automatic transfer of funds from your bank account. Make sure you have overdraft protection on your accounts so that you don’t end up making late payments due to insufficient funds.
- Keep the same credit cards. Having the same credit cards for a longer period of time improves your credit score.
- Don’t open lots of new ones. Even if you don’t use it, if you have $50,000 of credit available to you, that will affect your credit score. A lender cannot be sure that you will not max out that limit, which would affect your debt-to-income ratio.
- Keep balances low. The amount you owe on your credit cards in relation to your available credit is called your credit utilization rate. It’s better for your credit score to keep this number low, to demonstrate your fiscal responsibility. Also, if you can, consider paying more than the minimum each month.
These moves will help improve bad credit, but what if you have no credit? You might run into trouble qualifying for a mortgage if you have not established any credit. However, no credit is better than bad credit because it’s easier to fix, and it can be done faster. You may have no credit history if you have never had a mortgage, auto loan, credit card or store charge card. With no history to show that you are capable of paying bills on time, a lender might not want to take the risk of lending you money. But once you borrow money and pay it back, you will have established a credit history.
To learn more about how to improve your credit so you can qualify for a mortgage and get the home of your dreams, contact the friendly, knowledgeable team at Altius Mortgage.