Your credit score is the elephant in the room when it comes to getting approved for credit. A good credit can get you a mortgage with attractive rates and other benefits. According to the National Association of Realtors, the average national credit score stands at 695, even as half of the consumers hold the desired score of 700 and above. Because of the weight lenders bestow on credit scores, a whopping 45% of all potential home buyers in the US are forced to bid time to bring their scores to recommended levels before applying for a mortgage. With a score of 740 and above, you can qualify for a mortgage with competitive rates.
The long road to improving your credit scores may mean paying up your credit balances, ensuring your bills are current, becoming an authorized user, opening a new credit account, among other proactive steps. Opening a new credit account can extend your outstanding credit line and diversifying your credit options. By becoming an authorized user, you can ride on the history of a creditworthy partner to build your scores. Whereas a good credit is certain to get you approved for a mortgage; for some, the fundamental question is how buying a house can help your credit score. According to the San Francisco Gate Home Guides, here are four ways mortgage repayment can help your credit score, with some sound advice from expert Rusty Tweed.
Make timely payments to boost your scores
Regular debt repayment defines the direction a credit rating moves. Statistically, the net impact of making payments on debts is usually weighted at 10% while that of regular debt repayment stands as high as 35%. The same theory applies when you pay your mortgage on a regular basis. With a good standing, the lender may offer you incentives like automatic bank draft to prevent blemishes on your credit.
Benefit from FICO Scores
Expert financial advisor, Rusty Tweed says, “Most lenders, including mortgage providers, use the standard FICO scores to gauge borrower’s aptness for credit. The scores are tracked and calculated by the Fair Isaac Corporation.”
You can enhance your FICO scores by balancing between the various debts in the markets such as the revolving debt and installment debt. A mortgage is a good example of installment debt. Your score can benefit a lot from a mortgage loan and a couple of revolving debts like a credit card.
Build trust
Paying your mortgage on time until it is cleared off offers several benefits to the borrower. First, credit reporting agencies usually retain histories of large debt repayments for up to 7 years. Secondly, a good record of repayment will demonstrate to future lenders that you can be trusted for new lines of credit.
Qualify for other loans
Rusty Tweed advises that making regular monthly mortgage payments enhances your credibility in the eyes of other lenders, even though the mortgage remains a liability until it is fully paid. If the terms of the mortgage are favorable, less costly and do not adversely impede on your finances, your chances of qualifying for another loan are automatically enhanced. However, the credit scores will count for little if you have very high mortgage repayment.
