You’re hoping to enter the housing market and secure a mortgage – but you aren’t sure if your credit score is up to scratch. A strong credit score is a big part of buying a home, so it’s important to spend some time improving it if necessary. The part most people struggle with is knowing where to begin. Here, we outline some basic tips to get you on track to building the credit score you need to secure a mortgage!

First of all, what is your current credit score?

Before you start building your credit score, it will help to know where your score currently stands. There are a couple of ways to find out your credit score. Thankfully, it’s become much easier to check credit scores online in recent years. Many online banking websites allow you to check your score for free within your account. If not, you can also use an external provider like Equifax, which is generally regarded as the most reliable and accurate site. Inputting your information will allow you to see your score quickly and easily. 

A strong credit score is usually in the range of 650 and above. This is the score many lenders consider their minimum in terms of approving a mortgage application. The higher your score, the more likely you are to secure the best products and rates. While those with lower scores can still secure a mortgage, it might mean turning to an alternative lender, and dealing with higher rates. So, it’s worth it to put some effort into building up your score if necessary!

Try to pay more than the minimum amount

This is one of the most basic, and most effective, methods of building a strong credit score. The minimum amount you owe will let you avoid late fees or other penalties, and if you can only afford to pay the minimum amount, that’s okay. It’s better to pay the minimum on all your debts instead of paying extra on just one, and neglecting the others. However, if you can, it’s worth it to make bigger payments on all your debts. The more you can pay, the lower your balance will be, which means the less interest you will owe. It literally saves to make higher payments! Plus, higher payments lower your credit utilization ratio, which is the amount you spend divided by your credit limit. The lower your ratio, the more reliable you will appear to lenders.

Be smart about credit usage

Next, people with a strong credit score are smart about how they use their credit. Just because you have a five thousand dollar credit limit, for example, doesn’t mean you should always reach that limit at the end of every month. In fact, it’s much better to be strategic about how much credit you use. Ideally, successful mortgage applicants use less than 50 per cent of their available credit each month. This is enough usage for lenders to view their credit history, but not so much that lenders will be worried about a borrower’s ability to take on more payments. Credit usage is a balancing act!

Be careful about taking out new loans or credit

While you’re building up your credit score, it’s important to be wary when it comes to applying for new credit. When you apply for new credit, this signals to lenders you plan on spending more money. This might make them hesitant to approve a mortgage if they think you will be trying to make a bunch of other payments.. With this in mind, carefully consider whether you need a second credit card or line of credit right now, or if they can wait until after you secure a mortgage.

Take advantage of any old accounts

Finally, don’t close old accounts you have, even if you don’t use them anymore. If you have a lot of credit history on an older account, this can be very useful for your mortgage application and credit score. It shows you have a long history of making payments and being a reliable borrower. Lenders have a wider understanding of your spending habits when they can examine these accounts and their history. Plus, closing down accounts means reducing your total available credit, which is likely to bump up your credit utilization. If your older accounts show a solid credit history, it’s worth it to keep them active.

Building a strong credit score, especially with the goal of homeownership, can take time. Patience is key here! While you might not notice any huge differences at first, over time your credit score will start to improve. Keeping up consistent, positive habits like those mentioned above will help build up your credit. Over time, you will achieve the credit score you need so you can move on to your mortgage application with confidence.

If you have any questions about your mortgage, get in touch with me!