Your credit score is one of the most important figures when you apply for a mortgage loan, but most lenders don’t stop there. They will also closely analyze your credit report, which reflects upon your unpaid debts, rotating debts and payment histories. Lenders want to see healthy and diverse credit practices, as well as an established history of on-time monthly payments.
The better credit practices you utilize, the higher your score is going to be. A higher credit score, in turn, results in lower interest rates when you apply for a mortgage. To avoid any disappointment later on, it’s best that you are informed of your current credit standing.
What is FICO?
FICO stands for “Fair Isaac Credit Organization” and is the formula by which reporting agencies generate a credit score. There are numerous factors that contribute to one’s FICO score, and this is how these scores break down:
- 35% – payment history
- 30% – credit utilization
- 15% – length of credit history
- 10% – new lines of credit
- 10% – types of credit used
What is a Good Credit Score for Getting a Mortgage?
Each lender has its own guidelines as to what constitutes a “good” credit score. Generally, however, a score beneath 680 is likely to keep you from benefiting from the best interest rates. Before you begin the application process for a mortgage loan, it’s ideal to make sure that your credit is in good shape.
Why You Need to Get a Copy of Your Credit Report
Your credit report is a solid snapshot of your financial situation, particularly as it relates to debts and lines of credit. TransUnion, Equifax and Experian provide credit reports to the people of Canada – and it’s ideal to get your hands on a report from each. The three reporting agencies may have different information, or even incorrect information. Inaccurate reporting on these documents is not uncommon, unfortunately.
If you notice any errors on your credit report, contact the creditor and the reporting agency to dispute it. Some errors are so significant that they can drag your score down by many points.
Identity theft is another reason for errors appearing on credit reports. It is in your best interest to look over a copy of your credit report from each reporting agency every twelve months. This will help you stay on top of your credit situation and address any red flags early on.
By ensuring that your credit report is accurate and by making on-time payments toward your existing debts, you can drive up your credit score. We advise that you start looking after your credit long before you decide to apply for a mortgage loan.