How healthy is your credit score? It’s not likely something you consider every day, however, it is important to be aware of what shape your credit score is in, especially if you are planning on buying a home and will need to get approved for a mortgage from a mortgage lender.
Before thinking about how healthy your credit score is, it’s important to understand exactly what a credit score is and how it is determined. Basically, a credit score is a number that represents how creditworthy you are as a potential borrower and is determined based on a few different factors including your payment history, the amount of debt you carry, the types of debts you carry, the length of your credit history and the number of credit inquires that have been made. A credit rating can range from 300 to 900, with 760 – 900 being considered an excellent credit score, and 680 typically being the minimum credit score lenders will require before approving your mortgage loan.
Although the terms credit rating and credit score are often used interchangeably, it’s important to understand the key differences between the two. While your credit score ranges from 300 – 900, credit ratings typically range from 1 – 9. Credit ratings are also more focused on whether you have repaid the loans that you owe, whereas your credit score has more to do with representing how ‘risky” you may be as a potential borrower.
My Credit Score Needs Improvement – What Can I Do?
If you’ve found that your credit score is not as healthy as you’d like it to be, there are a few steps that you can take to improve that credit score. In addition to these helpful steps, you’ll want to keep the following more general ‘credit score rules of thumb’ in mind when borrowing and using credit:
Make Your Payments on Time
Ensuring your loan payments are made on time is the easiest way to keep that credit score healthy. I understand, however, that life gets in the way at times. If money is tight, try to pay off your loan as much as you can each month. Even if you are just able to pay the minimum amount, consistency is key when it comes to your credit score. If you are not able to pay a certain bill at any time, it’s important to connect with your lender as soon as possible to determine what your next steps should be – just be sure you don’t avoid it.
Diversify Your Credit Use
Diversifying the types of credit that you use is another way to build a strong credit score (and make getting approved for a mortgage easier). If you currently only have credit cards, it might be a good idea to apply for a different type of loan such as a line of credit. Diversifying your credit use shows lenders that you can handle and manage distinct types of credit and are not just relying on relatively easy-to-obtain, high interest loans like credit cards.
Limit the Number of Credit Applications
As much as it’s good to diversify your credit and have more than one loan, it’s also important to be mindful of the number of credit applications that you put out into the world. A high number of credit applications can be seen as a red flag and a huge warning sign that you might be depending too heavily on credit on order to get by.
If you’re worried that your less than stellar credit score may prevent you from your dreams of home ownership, let’s connect. As an experienced mortgage broker in Barrie, I specialize in helping those with no credit rating or low credit rating find the right mortgage solution. Call me today at 705-315-0516 and let’s get started.