Buying or building a dream home is every human’s cherished dream and one wants to get it done as soon as possible. Nevertheless, bad credit history might prove to be obstructionist, and this detail cannot be cleansed in a matter of few days or with petty transactions. It rather requires a great deal of effort in creating that congenial credit history to qualify for a mortgage.
Mortgage lenders would naturally look at the credit scores. Different parameters determine how the scores will help you buy a home.
Payment History: This feature has a 35% weightage and untimely payments can bring down the scores significantly. Equifax mentions that even dereliction of 30 days can bring a drop of 90-110 points in the scores.
Debt-to-utilization ratio: This is the amount of debt accumulated that is divided by credit limit on the sum of the accounts. This ratio needs to be restricted to 30%. Maxing out credit cards every month can be damaging.
Length of credit history: Longer credit is always advantageous as it shows credit capacity. It is recommended that every old account even with zero balance must be kept opened as it emphasises on a long history.
Credit mix: If the credit history shows a mixed record that includes credit cards, retail accounts, instalment amounts, car loans, etc., then such combination engenders better scores.
New Credit: One has to avoid hard enquiries at all costs and this implies that every time a new account gets opened, scores ding down. Such deceleration can be controlled by avoiding opening multiple credit accounts at a time. This basically lowers the average age of credit accounts which is clearly not suggested to help acquire a mortgage loan.
Fair Isac Corporation claims that only 0.5% of people are capable of acquiring the score of 850 which is an ideal number. So if that not ambitious score, then even numbers in 700 can attract decent and reasonable interest rates. For your information, it must never slip below 660 if a new house are on the cards.