When you look for a mortgage, lenders will review your credit report. Your credit report is a history of how you have managed your finances and repaid debt. It provides information on money you have borrowed and a history of your payments.
Your credit history is pulled together into a credit report by three private companies: Equifax, Experian and Trans Union. These companies sell your credit report to banks and other creditors so they can review mortgage and loan applications.
Your credit report includes:
Most of the information in your credit report is deleted after 7 years (a bankruptcy is deleted after 10 years) and is continuously updated to reflect the latest information.
It's important that you look at your credit reports from each of the three companies to make sure they are correct. Your credit report may vary from one company to the other.
Your Credit Score
When you apply for a mortgage, the lender may request a credit score as well as a credit report. A credit score is a computer-generated number that indicates your ability and willingness to repay a debt based on your credit record.
Your credit score is part of the mortgage information that will decide if your application is approved. Your credit score may also be used to determine the mortgage interest rate.
Start Building Your Credit
Building good credit doesn't have to be difficult. Follow these tips and you're on your way:
Make a Budget and Live Within It!
A budget will help you meet your monthly bills, and therefore help your credit. It also can help increase your savings for things like a down payment on a house.
Demonstrating your ability to save and having funds on hand will help you in the mortgage approval process. Your personal savings should be sufficient to last several months should you lose your job or source of income.