Before you can buy a home, or shop around for the best mortgage rate from a lending institution or Bank, you have to know more about your credit history. A credit check will give you either a good or bad credit rating depending on your financial history.
Your credit report shows your personal identification (name, address, social security number); lists anyone who has requested a copy of your credit history in the past three years (i.e. a bank or credit card company and retailers); and details of your past credit transactions. This credit history shows if you paid your bills on time or if your overdue account was sent to a collection agency, and if you ever declared bankruptcy.
Lending Agencies use the “Five C’s” of Credit to determine your credit rating:
Character: A lender looks at your credit and job history, education level and how long you have lived in your current residence to reach an opinion on whether you can be trusted to repay the loan.
Capital: The larger the down payment you are putting down to buy the home shows the lender you are able to save money and are a good risk and likely to make your monthly mortgage payments. The more capital you have, including assets such as a car, shows the lender you are trustworthy and can have an impact on the mortgage rate you receive.
Credit: Again, your credit history plays such an important role in a financial institution lending you money for a mortgage. The lender will review your credit cards, car loans and any other loans with companies that have given you money or products that you agreed to pay for later. Any missed payments can impact whether you are eligible for a mortgage and the rate you receive.
Collateral: The bank needs reassurance that the property you are buying is marketable in case you default on the mortgage and will determine the property value by way of a real estate appraisal.
Capacity: The bank will take into account several factors including how much money you earn, the stability of your job and any other sources of income to determine how you will repay the mortgage loan.
Improve your credit rating by paying bills on time. Keep your account balances below 75% of your authorized limit on credit cards and avoid applying for too many credit cards at once as this could be construed as credit problems by a potential lender.
If you have the time to wait, you can obtain your credit report for free or get an immediate result online for a nominal fee.
Examine the report in detail, correct inaccurate items or remove outdated information to make your credit history as good as it can be. Lending Agencies are paying attention to your credit history and you should too.
home-inspection
