Did you know that getting a loan to either purchase or upgrade your home is difficult when you have a bad credit score? Truth is, your Credit Score is key to having a stable financial life. Your credit score is one of the most important factors lenders look at when considering your loan application as it tells the story about your approach to debit and credit servicing.
So, building a healthy credit score (making you pre-approved ready) is important, but it can be difficult to do especially when one does not know the first step on how or where to start.
But, don’t worry. It’s not the end of the world. Your credit story can have a ‘happy ending’ if you take steps to improve your credit score. Here is some valuable information for you…
Where did the credit score originate?
The importance of a credit score started in 2004 with the advent of the Automated Credit Bureau (ACB) to which all commercial lenders subscribe. The Bureau is the first and only automated, on-line credit reporting agency in Trinidad and Tobago. As a subscriber, a lending agency like TTMB can access information on a customer’s credit history/profile from each of the other member subscribers as they seek to:
- Determine how risky it would be to offer you credit
- Evaluate your ability to repay your credit repayment pattern over time and
- The likelihood that repayment will be consistent and timely
What is a Healthy Credit Score?
A healthy credit score shows that current loans, as well as previous financial obligations by the borrower, are being repaid on time. You can obtain a copy of your credit report from the Bureau. The credit report provides details such as:
- The types of credit facilities that have been granted, i.e. consumer loan, credit card, mortgage etc.
- The amount of credit granted
- The length of time that the accounts have been open
- Whether or not the loans were paid on time
- Whether any additional requests for credit were made
Your credit profile contains Personal Information, Residence History, Employment History, Credit Information (various loans granted and repayment history) and Inquiries (whether and from whom attempts to obtain credit facilities were made).
How do you build your credit score?
Building your credit score means putting in the work and patience to improve your standing and establishing a good credit history. Although there is no one-size-fits-all apporach, there are some basic principles that hold true. Mainly, a high credit score means that you are a low-risk borrower, which could lead to pre-approval/borrowing success. So, how is it done?
- Be prepared to discuss past credit problems honestly with your lender. Tell them about any repayment issues that may have been caused by unemployment, illness or other financial difficulties.
- Make your monthly payments (e.g. credit card) on time. Show lenders that you are responsible with money and that you will not default on a loan in the future.
- If your goal is to acquire a home in the short to medium term, you should seek to improve your debt-servicing ratio (DSR). Your DSR is the percentage of your monthly gross income that is committed to repaying loans, credit cards, higher purchase etc. When appling for a mortgage, your DSR should not exceed 40%.
- Ensure that you repay as many of your loans as possible and keep credit card balances low until you are ready to submit your mortgage application. The lower your level of debt at the time of applying for a mortgage, the more affordable your new home is likely to be.
- Put at least one major loan, like student loan, or car loan on automatic payment. This is a crucial step in building a high credit score. It demonstrates that you can meet your financial obligations on time, which lenders look at before offering further credit.
