Improve your credit rating
As a mortgage broker, I have seen first-hand the impact that a good credit rating can have on a borrower's ability to secure a mortgage with favorable terms. If you're looking to improve your credit rating, there are several steps you can take to help increase your score and improve your chances of getting approved for a mortgage.
Check your credit report: The first step in improving your credit rating is to check your credit report for errors. Your credit report contains information about your credit history, including your payment history, outstanding debts, and credit inquiries. Errors on your report can negatively impact your credit score, so it is important to review your report regularly and dispute any inaccuracies you find. You can access your credit report online for free from Equifax and TransUnion. Most banks offer access to your credit report via online banking.
Start slow: Applying for credit cards, bank loans or a new mobile phone account will all produce hard inquiries. A lot of hard credit inquiries indicate that you may be taking on too much debt and will have a lot of repayment responsibility and risk. Instead, apply for just one manageable card to start. Eventually you want to include a mix of types of credit - credit card, car loan, line of credit. Remember to go slow and only apply for credit when you really need it.
Pay your bills on time: Late payments can have a significant impact on your credit rating. Make sure to pay your bills on time, including credit card bills, utility bills, and any other bills you may have. If you have trouble remembering to make payments on time, consider setting up automatic payments or reminders to help you stay on track.
Keep your balances low: High balances on your credit cards can negatively impact your credit score. Aim to keep your balances below 30% of your available credit limit. If you have high balances, consider paying them down or consolidating them into a lower-interest loan.
Don't close old accounts: Length of credit history is an important factor in determining your credit rating. Closing old accounts can shorten your credit history and negatively impact your score. Instead, consider keeping your old accounts open and using them occasionally to maintain a long credit history.
Consider getting a secured credit card: Unlike unsecured credit cards that allow you to spend up to a certain credit limit of money that’s not yours, secured credit cards require you to make a security deposit before you start spending. So in essence, you’re spending your own money. With every timely payment that you make, you can slowly and steadily build credit, since most secured credit cards report your activity to the credit bureaus. Over time, with responsible payment activity, you can give your credit score the boost it needs to finally be eligible to upgrade yourself to an unsecured credit card.
Have your spouse or family member add you as an authorized user on their credit card: When you’re added as an authorized user to someone else’s credit card account, information from the account can show up on your credit reports. That means your credit can improve if the information is positive, simply as a result of being added to an account that is kept in good standing. Bear in mind that not all issuers provide information about authorized users to the two major consumer credit bureaus – TransUnion and Equifax. Ask the credit card issuer whether they report authorized user account information to the two major consumer credit bureaus. Note that adding an authorized user could come with an additional annual fee.
Improving your credit rating takes time and effort, yet it can have a big impact on your ability to secure a mortgage. By following these steps and staying vigilant about your credit history, you can increase your chances of achieving your homeownership goals.