Do you know where your credit health stands? It is a new year, which for many means setting new goals, reviewing processes to reach those goals and overcoming obstacles that are preventing goals from coming to fruition. If one of your goals is to purchase a home, reviewing your credit health is a good place to start.
Why is your credit score important? Lenders use credit scores to make decisions on whether to offer you a mortgage, credit card, auto loan, and other credit products, as well as for tenant screening and insurance. They are also used to determine the interest rate and credit limit you receive.
The 5 biggest factors that will affect your credit score are:
1. Payment history - This reveals whether you have a history of repaying funds that are loaned to you.
2. Debt-to-credit ratio - Measures how much debt you have compared to your available credit limits.
3. Length of credit history - How long you have been using credit? For how many years have you had obligations? How old is your oldest account? What is the average age of all your accounts?
4. New credit - Factors in accounts you have applied for recently and considers the last time you opened a new account.
5. Amount of credit you have - Do you have a mix of different types of credit, such as credit cards, store accounts, instalment loans, and mortgages - this looks at how many total accounts you have.
Commonly asked questions about your Credit Health:
How do you find out your credit score? Two of the most common ways are through Equifax and TransUnion. Both companies have options to access your credit report online, by mail, by phone (Equifax only), or in-person.
What is credit monitoring? This service will notify you after certain updates have been made to your credit report and credit score, such as a credit inquiry. This can help you see if somebody is trying to apply for credit in your name or you suspect fraudulent activity.
How often you should check your credit report? It is recommended every 6 months to annually.
What if you do all this and find your your credit health is not where you want it to be? Here is what you can do to improve or maintain a good credit score:
Pay your bills on time
Keep your credit utilization ratio low
Limit how often you apply for credit
Keep older accounts open
If you want to learn your credit score, or have questions about how yours will affect you when getting a mortgage, I can help. Reach out when the time is right for you,