Establishing and Maintaining Good Credit
The mortgage industry is booming at the moment! There are more buyers and people wanting to purchase a home than there have been in recent years for quite some time as the market has once again become healthy. Before getting a mortgage, it is good to know what a bank wants to see as well as ways that you can build your credit so you become the a strong candidate for a home loan.
Generally, when seeking a mortgage, banks like to see that you have two sources of credit established for two or more years. These forms of credit should also be ones that have been used consistently so the bank can see that you have made payments regularly and on time. An example of a great scenario would be to have a credit card with at the very least a $1,500 limit as well as a car loan or another type of loan that has monthly payments. It doesn’t necessarily have to be a credit card and a loan though this is a very good combo that would establish and build credit very fast.
This is the ultimate scenario, however, it is possible to get approved for a mortgage with less than two years worth of credit if you have a solid repayment history and with higher limits on your credit such as a loan that is $20,000 or higher and bank card ranging from $5,000 to $10,000.
When needing to improve your credit, credit cards, loans and lines of credit are the only items that will actually improve your credit. Bills such as cell phones and other monthly bills will not help. Even though you make monthly payments on these type of bills, these companies do not report to credit agencies unless you are late, which will only impact your credit in a negative way. Even mortgages do not normally report your credit to bureaus unless you fall behind in payments. One way you can establish credit using your mortgage is to set up a “Home Equity Line Of Credit” against your home, also known as HELOC in the industry.
To maintain your credit is very simple. Just don’t miss a payment and if you do, settle them as quick as possible. Even parking tickets from the city go into collections and will therefore negatively impact your credit. It is important to make sure these are paid on time. Before getting a mortgage, most lenders will need you to settle your collections prior to funding your mortgage.
I hope this bit of information helps you as you prepare to purchase your next home. I am always available for questions you may have and look forward to servicing you soon!