Your credit score is a number between 300-900 given to you based on the repayment history of your credit facilities, such as credit cards, lines of credit and auto loans. It represents the perceived risk you pose to lenders at a specific point in time. A higher score means you are less risky.
Your credit score is one of the criterias used by lenders in order to evaluate the strength of your mortgage application. Along with income qualification standards, your credit score will determine whether or not you will be approved for the mortgage and at which rate etc.
There is no set standard for a good score, as every lender is different. However, a score of 650 and above is generally universally accepted and preferred by all lenders. Therefore improving your credit score is vital to securing a good mortgage.
Here are 5 ways in which you can improve your credit score:
- Always pay your bills on time – Late payments can have a negative effect on your score.
- Always pay your bills in full – similar to late payments, minimum payments can also have a negative effect on your score.
- Don’t go over the credit limit on your credit card – always try to keep your balance well below your credit limit.
- Lower your credit utilization ratio – this ratio compares the amount of credit you are currently using vs. your credit limit. A low ratio is preferable as it means that you are using less credit.
- Pay off any debts quickly