The dream of owning your own home is a huge milestone for many individuals and families. Whether it’s a peaceful cottage in the countryside or a modern apartment in a lively city, your vision of your perfect home can become a reality here with us at Signature North East. However, before you start searching for your dream home, there’s an important factor to consider…your credit score. So, let’s dive into why your credit score is so important when it comes to buying a house and ways in which you can improve your credit score.
Why your credit score matters.
When applying for a mortgage, lenders will analyse your credit score in order to determine your solvency. A higher credit score presents to lenders that you are an accountable borrower, increasing your chances of being approved for a loan. Simultaneously, a lower credit score may result in significantly higher interest rates or possibly a rejection of your intended application.
Your credit score impacts the interest rate that is offered to you on your mortgage. A higher score can convert to lower interest rates, which can save you A LOT of money over the span of your loan. However, on the other hand, having a lower credit score can result in higher interest rates meaning your new home purchase becomes more expensive in the long run.
When you have a high credit score you are granted a wider range of options when it comes to loans, due to being more likely to qualify for different loan programs, such as government-backed loans (more favourable terms). However, a lower score could limit your options meaning there is the chance of less favourable terms or even rejection.
5 ways you can improve your credit score.
Now that you understand how important your credit score is, let us talk about four tips you can use to improve your credit score.
•Check your credit report
Start by keeping a copy of your credit report from three of the major credit reference agencies in the UK– Equifax, Experian, and TransUnion. These agencies hold all your financial data on a credit report; therefore, you can review these reports for any errors. Appealing any inaccuracies to make sure that your credit report reflects your correct financial history.
•Paying your bills on time
Making sure that you are paying your bills on time consistently, arguably is one of the most effective ways that you can improve your credit score. Late payments can dramatically decrease your credit score, so make sure you organise a way suited to you that ensures all your bills are paid on time.
•Reduce those credit card balances
If you have a high credit card balance that’s close to your credit limit this can negatively impact your score. So, make sure you’re aiming to keep your credit balance low and below 30% of your limit and paying outstanding balances on time as this can significantly increase your credit score. However also make sure not to neglect your credit card, as having a limited credit history could potentially make it hard to prove yourself capable of managing loans.
•Avoid opening new credit accounts
Every time you apply for a new credit account, this could result in a hard inquiry on your credit report which can mean a small, brief dip in your credit score. Consequently, be smart when it comes to opening new accounts and try to only do so when necessary.
Your credit score is extremely important when it comes to buying a property, impacting interest rates, mortgage approval, loan options, and more. Building good credit does take discipline and time, so why not start working on it today? Here at Signature, our goal is to make your journey in buying a home hassle-free!
For more FREE initial financial advice get in touch today, by contacting us on 0191 251 3344.