A credit score is a way through which lenders determine your financial health, at the time of applying for a loan. A credit score reflects your credit history; the rate at which you are indebted, how fast you repay your debts, if you have a steady source of income and what your bank balance looks like holistically.
Why does your credit score matter so much?
Your credit score will be used to determine just how risky of an investment you will prove out to be. Lenders want to make sure than any loan they give will be paid back in due time. Your credit score history is what will help them determine if you are likely to pay them back or to default. It will also help them decide what interest rate will be best suited for you, if they accept your application. This is why it matters so much, especially in regard to mortgages and loans. The higher your credit score, the less risky of a borrower you are perceived to be.
How can you keep your credit score high?
While there is no quick way through which you can achieve a massive jump in your credit score, there are certain steps you can take in order to improve it as much as possible:
- Reduce your level of debt
You should make an active effort to stay away from debt so that your credit score remains high. This would entail that you stay away from credit cards, leases, loans and such. Let necessity determine these factor and keep your debts as minimal as possible.
- Try opting for reminders
One of the major reasons for a poor credit score is that you may simply forget that certain payments are due. You can ask your bank to set up reminders, if you are unable to do it yourself, so that you are aware about all that you owe and you work towards paying all debts off.
- Remain proactive when it comes to credit score history
Even delayed payments can shave off ample point from your score. Thus ensure that all of your bills are paid on time, prevent fines from accumulating through missed payments and manage your credit responsibly.
What will lenders look at before accepting a mortgage?
The first thing that second mortgage lenders will look at, before they accept your mortgage, is your credit score. As mentioned above, it will determine your risk factor.
Additionally, the lender will also look at:
- The amount of debts you owe
- What your income is like and whether it is enough to sustain you and a mortgage
- If you have a steady pay cheque coming from regular employment
- What your assets are and how many of them you have
- The size of your down payment