Photo Credit: Graur Razvan
The primary factor in determining your eligibility for a mortgage is, of course, your credit history. Lenders score your credit history with a program that generates a result called a FICO Score. Your FICO Score is determined by a point system based on your payment history: whether your payments have been made on time, how long you’ve had credit for, whether your cards are maxed out or paid in full, etc. Based on these criteria, the system awards you a score between 300 and 900. The higher the score, the better the credit. Many lenders will not even consider a loan to potential borrowers with a score of less than 600.
The acronym FICO stands for Fair Isaac & Company and is the most popularly-used credit scoring system. It is also sometimes referred to as the Beacon Score. The system analyzes the following five factors in your credit history (each factor is weighted differently):
1. Your past payment history (makes up 35 per cent of your score)
2. Frequency of credit use (makes up 30 per cent of your score)
3. How long you’ve had credit for (15 per cent of your score)
4. The types of credit you’ve used in the past (10 per cent of our score), and
5. The number of times your credit history has been checked – i.e. you’ve applied for more credit
Although your credit history is going to have a significant impact on whether or not you get approved for a mortgage, some loan officers will take the following things into consideration as well:
- The size of your down payment. A larger down payment lowers the loan amount and makes you less of a “risky investment”;
- A low debt-to-income ratio. That is, you are not carrying much debt relative to how much you earn;
- Savings. Having a good history of saving money will work in your favour;
- And finally, if you have a reasonable explanation for any negative items in your credit report, that can be helpful, too.
It is very important to make sure you are managing your credit responsibly. A good credit score can make a lot of things possible for you down the road – of which obtaining a mortgage is only one example. Having a good credit history can even score you lower interest rates on your loans. Make it a priority to ensure that your payments are never late. Timely payments and Keeping your balances low will help you maintain a healthy credit profile, and get the best deal you can on your mortgage.
Heleen Jacobsen
Broker of Record with InfoMarket Group GMAC Real Estate
www.infomarketgroup.com
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