Building a home has always been a dream of ours. We talk about it often and fantasise about what it will look like, right down to where we’d put the Christmas tree. Is this a far off dream or is it possible to make it a reality?
Our first port of call is a long term budgeting plan and making sure our finances are in tip-top shape. Making our credit score as attractive as possible to mortgage lenders, saving regularly into a savings pot and limiting our total debt.
What is a Credit Score and Why is it Important?
A credit score is a numerical rating given to someone based upon their credit history. It indicates how reliable you may be at borrowing money and making repayments.
How do I find out my credit score? You can find out your credit score for free from credit rating agencies such as Experian, Equifax or TransUnion amongst others. Each agency uses different numerical scales, but they all have a range for an excellent, good, fair, poor or very poor credit score.
What’s the Minimum Credit Score for Building a Home?
A little research shows to achieve our dream of building our own home we will need a credit score of 680 or higher. This comes with the caveat that the score needed is dependent upon the credit rating agency you are using, as each agency differs slightly.
It is also worth noting that it depends on the lender, as some do not have a minimum score that they accept. However, a lower score will decrease the deals that are available to you and reduce your chances of being approved. As a result, you may need to provide a larger deposit or accept a higher level of interest.
How Higher Credit Scores Affect Your Ability to Get a Mortgage
A higher credit score gives us the best chance of being approved for a home builder’s mortgage and access the best lenders and deals on the market. The higher our score the better our chances.
Simply put, the higher your credit score the more attractive you will appear to lenders. You are more likely to be approved and you will have access to better rates of borrowing and a wider range of products and lenders. Over the term of your borrowing, you may have lower rates of interest.
If you are looking to borrow, whether it’s for a home builders mortgage or another type of mortgage, the higher your credit score the better. A high score means you are perceived as a lower risk for taking on credit.
Why You Need to Understand Your Credit Report
By taking control of your finances, over time you can put yourself in a better position to achieve your goals. Whether that’s building a house in London, England or moving to Canada and looking at Calgary Homes for Sale!
A good credit score gives you access to more products and increases your chance of approval.
Understanding your report allows you to act to prevent things that can negatively impact your score. Late, missed repayments or numerous credit applications can lower your rating.
If your credit rating is low, take charge and follow the recommendations to improve your credit score. This could mean building a good credit history. Always make repayments on time or only use a small percentage of your available credit.
In Conclusion, What Should I Do With My Credit Report Now That I Know More About It?
· Firstly, monitor it often, regularly check it to ensure the information on it is correct. If any mistakes are spotted take it up with the relevant lender to get them corrected.
· Take on board and act on any recommendations to improve or boost your score from the credit rating agency.
· Automate bill or credit card payments to avoid any late payments that would show up on your credit score. Pay all repayments on time.
· Consider cancelling any credit cards that you don’t use but balance that with having credit that you pay off regularly. For example, at the end of every month pay off the amount on your credit card. This shows that you are a reliable borrower and you make all of your payments.
· Finally, make sure you are on the electoral roll if you are not already.
Now go and find out your credit score. Take the steps to improve and look after your rating. Make informed decisions about your future whether it’s for building or buying your dream home. Plan according to your means and put yourself in a better position to secure a mortgage.
Please note all opinions in this article are my own and do not constitute financial advice. Please see a financial adviser or mortgage broker for advice to meet your needs.