Credit scores play a big part when it comes to managing finances and applying for loans, but what exactly are they? They’re essentially assessments made by most lenders that let them know how risky you might be as a borrower. The higher your score, the lower your risk. So, if you’re looking to secure a home loan, here are some of the basics to keep in mind!
It’s a good idea to check your score as early as possible! Unlike school homework, which can be crammed in at the last minute, fixing a low credit score requires discipline and patience.
It’s also good to monitor it regularly so that changes can be dealt with sooner. If there is a dip in your score, your information in the system will help you narrow down what went wrong and point you in the right direction.
One of the biggest score factors is your Equifax credit history, which records the number of recent loans you’ve applied for, your potential defaults and bankruptcies, and determines how punctual you’ve been with your finances.
All your data is then collected and presented as a number between 0 and 1200. What you’re aiming for is a score above 600 to be relatively risk-free. So naturally, the fewer overdrawn accounts and missed payments you have, the better your reputation.
And reputation is important, because banks will also consider their relationship with you. Not only do you have to make sure your accounts are balanced and everything’s up to date, you’ll also have to be in a stable job for at least six months and you must actually be able to afford the loan. Your current assets have to make sense (a high earner with few belongings will seem suspicious) and the size of your loan has to be reasonable.
Not everyone wants to know their credit score because they are afraid of what they’ll find, but if you are planning to apply for a home loan, wouldn’t it better to do it sooner rather than later? It’s a vital part of loan applications and may very well determine your success. Don’t wait till it’s too late!