A low credit rating can make it impossible for you to realise your dream of becoming a homeowner. Improving your credit rating before you apply for a mortgage is the best way to save money in the long term. Here are five easy tips to help you achieve this goal.
Pay Down Your Credit Balances
Credit card debt can ruin your credit rating. Carrying a high percentage of debt in relation to available credit drags down your credit rating, so it is important to focus on paying down these balances.
Consider living on a tight household budget while you are paying down your debts. Revolving credit like credit cards should be paid off as quickly as possible. You'll even save money with this method by avoiding the high interest rates associated with revolving credit.
Improve Your Payment Habits
Your payment history accounts for 35 percent of your credit rating, so it is essential to keep your payment history positive. Don't panic if you already have late or missed payments on your credit report. It's impossible to erase the past if this information is accurate, but your credit report only reflects seven years of credit history. Making a commitment to pay on time now will boost your rating in the long term.
Keep Old Accounts Open
You may think that it's beneficial to close old accounts that you no longer use, but closing these accounts can actually decrease your credit rating. A portion of your rating depends on the length of your credit history. A long credit history is considered to be beneficial, so you want to keep old accounts open to make your overall credit history as lengthy as possible.
Be Cautious About New Credit
Applying for a credit card or loan is an activity that is reflected on your credit report. Too many applications in a short period of time can have a negative impact on credit history. Opening many new accounts can also make it more difficult to manage your credit. Only apply for credit when it is absolutely necessary.
Maintain a Mix of Credit
The types of credit accounts you have can impact your credit rating. Lenders want to see a mix of credit types to ensure that you can handle different types of credit. Mortgages, auto loans, credit cards and personal loans are all different types of credit.
If you require a more in-depth assessment of your financial situation, find out more about the financial advice Mortgage Choice can provide.