Understanding Your Credit for a Smoother Mortgage Experience

Posted: October 5, 2009    Categories: calgary mortgage broker, mortgage advice

There’s no doubt about the current credit market: mortgages are not what they used to be. Stricter lending guidelines can make your home buying experience all the more complicated – unless you prepare yourself and your credit in advance.

Before you begin perusing neighborhoods and dreaming of your first home, you should instead begin thinking about your credit. Because, let’s face it, if your credit isn’t in order, obtaining a mortgage may simply be unattainable, especially in today’s economic climate.

Don’t let this information scare you; instead, begin the road to understanding your credit so that you can be fully prepared to take on a mortgage lender and walk away with a mortgage for your first home.

The Road to a Better Credit Report

The first step is to understand that one of the first things a lender will do is review your credit report. In fact, the lender will likely pour over it with a fine-tooth comb.

What is the lender looking for? Evidence that you have managed your finances well; that you have a strong history of paying your bills on time; and that you aren’t overextended with debt.

Therefore, your first plan of attack should be to order a copy of your credit report from all three, national reporting bureaus: TransUnion, Equifax and Experian. Best of all, you are entitled to a free copy of your credit report, from all three credit agencies, on an annual basis.

How to Evaluate Your True Credit

Once you have possession of your credit reports, you will need to make sure they are accurate. This may involve quite a bit of your time, but it is necessary, as even minor errors or discrepancies on your credit report can lower your overall credit rating, thereby either preventing you from obtaining the best, possible interest rate or from obtaining a mortgage at all.

If you locate any discrepancies or errors on your credit report, it is crucial that you immediately contact the appropriate credit reporting agency, who will then investigate and hopefully resolve the issue on your credit report.

What Your Mortgage Lender Evaluates

Your mortgage lender will ultimately be looking at your FICO score, which is designed to help lenders decide whether they think you are a good credit risk. Your FICO score is comprised of several factors, including:

• Your payment history – Have you paid your debts on time?

• The total amount of your debt – Also referred to your debt-to-income ratio, or how much debt you pay out each month in relation to your overall income. Now is a good time to begin paying off as much debt as possible.

• Your credit history – A lender will look for a history of responsible credit management on your part.

There is no magical formula for determining your FICO score; instead, it is a culmination of several factors, all of which work together to give a lender a good idea of how you have managed your credit in the past, and how much debt you have taken on at any given time.

The best rule of thumb is to simply pay your bills on time, keep your debt to a minimum and check your credit reports for accuracy before applying for a mortgage so you can be ahead of the game and ready to secure a mortgage.

About the Purcell Mortgage Team:
The Purcell Mortgage Team are an industry-leading pair of mortgage professionals who have been serving Calgary for several years. JoAnne Purcell was ranked within the Top 50 Canadian Mortgage Professionals in the CMP Magazine. If you are in need a reputable calgary mortgage broker please contact us today!

The Purcell Mortgage Team are experts on Calgary mortgages!