What is a credit score & how can I improve it?
Dear Cheryl&Mack,
After diligently saving for what felt like an eternity, my partner and I were ecstatic to have finally accumulated enough funds for a house down payment.
However, during our visit to the bank to get pre-approved for a mortgage, I was blindsided by the news that my credit score was too low.
This left me feeling disheartened, as I had no prior knowledge of what a credit score entailed.
Despite not having taken out any loans during university, or not having any credit card debt, I was surprised to learn that my lack of credit history was the reason behind my disqualification for a mortgage.
The mortgage specialist recommended that I apply for a credit card, or even two, to start building my credit score.
Could you please help me understand what exactly a credit score is and how I can enhance it?
Despite my efforts to maintain good financial habits, I seem to have faltered in this aspect and could use some guidance.
Sincerely,
Declined
Dear Declined,
Let's get you up to speed on what a credit score is.
Think of it as a grade for how responsible you are with borrowed money. The higher your score, the better you look to lenders when you're trying to get a loan or a mortgage.
Now, you might be thinking, "But wait, I don't even have a credit card! How am I supposed to have a credit score?"
And that's a great question. See, having no credit history can actually hurt your score because lenders don't have any way to gauge how you handle credit.
But don't worry - there's an easy fix for this.
As that mortgage specialist suggested, you can start by applying for a credit card (or two).
Use them responsibly, paying off your balances in full each month, and your score will start to climb.
Another tip - keep an eye on your credit report. It's a record of all the credit-related activity in your name, and it's what the credit bureaus use to calculate your score.
You can get a free copy of your report once a year from each of the major credit bureaus from Credit Karma for example.
Make sure everything on there is accurate, and if you find any errors, dispute them right away.
With a little bit of knowledge and some responsible credit use, you'll be on your way to a higher credit score and a homeowner in no time!