First thing first – you need to know what the bank will know about you!

Banks determine the risk of loan based on you – your past financial history. They are looking at your credit score, which is a record of all the credit that has been issued you and your history of paying that credit back.
You need to obtain a copy of your credit report; there are sites on the internet that offer credit reports for free, such as annualcreditreport.com.

Once you have your credit report in hand – review the entries, to verify that all the information is correct, as sometimes there are inaccuracies reported.

Time will cause some entries to ‘fall off’ your report, this usually happens after 7 years. Banks do understand that we all have a past. And if can be demonstrated that you have been responsibly meeting your obligations for an extended period of time that is usually taken in to account when reviewing your credit worthiness.

Banks speak of credit scores. These scores are called FICO (Fair Issac Company) that combine the results of the 3 primary reporting agencies – Equifax, Transunion and Experian into one number. Scores can range from 300 -850. Although the credit report in your hand does not provide this number – knowing the items that are used to calculate that number can really help.

FICO is based on several factors including;
• 35% on repayment history
• 30% on amount owned lenders
• 15% on the length of your credit history
• 10% newly open accounts or applications
• 10% on the ‘mix’ of credit type – credit cards, mortgage, car loans

Things that will help to improve your credit score (some may be obvious).
• Pay your bills on time – EVERY month
• Keep borrowing below your limit – maxing out credit cards is a red flag
• Limit the number of credit cards you have. Note in the FICO factors history plays a role, better to keep the older credit cards that establish a longer history.
• Don’t apply for new credit while trying to qualify for a mortgage

Banks are in the business of lending money – being prepared can help to make the dream of home ownership a reality.