Most financial experts agree that owning your own home is a far superior choice compared to renting a home or an apartment. With each monthly payment you make on your mortgage, you will build equity in your home. In addition to building equity through your own monthly payments, equity may also accrue as the value of your home increases over time.
As wonderful as home ownership can be for your financial situation, finding the right mortgage is critical to enjoying these benefits. Your credit score is one of the most important factors that will be reviewed when you apply for a mortgage.
Why Your Credit Score Matters
A credit score essentially provides a mortgage lender with an analysis of your ability to handle debt responsibly. It is based on factors such as timely payment of debts, the amount of debt you are carrying, how close your accounts are to reaching the available credit limit and more. A lower credit score indicates that it may be more risky for a mortgage lender to make a loan to you. A higher credit score, on the other hand, indicates that you have handled your credit and debts responsibly over time. The risk of lending to someone with a higher credit score is minimal. The credit score is not the only factor reviewed when you apply for a mortgage. Other factors like your income level, savings account balances and more are also taken into consideration. However, the credit rating can affect your ability to get the loan amount requested and to obtain the best loan terms available.
Checking Your Credit Score
Because of how important your credit rating is to your ability to be approved for the best loan terms possible, you should take time to check your credit score before you apply for a mortgage. You can request a copy of your credit report from the credit bureaus. When you review your credit report, you should look at the credit scores as well as other factors like the number of late payments being reported, if you have any collections accounts reported with balances outstanding and more. If your scores are low or if you have any negative aspects of your credit report, it is best to remedy these items before you apply for a mortgage.
Time to Make Changes
It can take time to make changes to your credit report. Consider that credit card companies, loan companies and others typically only report account status to credit reporting agencies every few weeks. If you have legitimate negative items on your credit report, such as late payments that are being reported correctly, you have no recourse but to wait. They may take up to seven years to be removed from your credit report, but with regular payments made on time, the effect of late payments will diminish even if the late payments are being reported. If your credit scores are low because of incorrect information, you can contact the lenders and the credit bureaus to remove the incorrect information. Further, you can also consider paying down some of your account balances to improve your credit rating. After these changes have been made, you may still need to wait several months to see a significant increase in your credit score.
It is common for people to struggle financially from month to month, and this may be why you have late payments reported on your credit report. However, you may consider the benefit of applying for short term loans rather than making payments late.