Your credit score is an important tool banks will consider when deciding whether or not to give you a mortgage, as well as the type of mortgage and rate. 

Your credit history begins when you first apply for credit or borrow money.  Your credit score is a judgement on your credit history and financial health at a specific point in time.  It lets lenders know the risk in lending to you.   Credit scores range from 300 to 900, in which the higher the score represents the lowest risk to the lender.

Lenders may set their own standards as to how low a credit score they will accept, and what rate they will offer depending on a potential borrower’s credit history.

Here are some tips on how you can repair or improve your credit score:

1. Keep track of your credit history and score by getting a free copy of your credit report.

The first step in improving your credit score is actually knowing what it is.  You can inquire about your credit history with Equifax or Transunion without affecting your score.  Ensure that your credit history is correct, and contact the creditor to rectify any issues, such as fraudulent or incorrect transactions.

2. Always pay at least the minimum amount by the due date.

You should try to pay the full amount by the due date, but at the very least you should be paying the minimum amount due on time.  Your ability to pay on time will be reflected in your credit score, and if you miss payments, it will be reflected in your score.  When making payments on-line, don’t wait until the due date as it may take a few days for your payment to reach the creditor.  I always aim for 5 days before my due date.

3. Pay your debts as quickly as possible, and don’t go over your credit limit on your credit card.

You should aim to keep your balance as low as possible, as a higher balance will have more impact on your credit score.  Generally, once your balance is above 50% of the limit, that will start to drop your score.

4. Don’t apply for too much credit.

When potential lenders do a credit check inquiry, it will lower your score by a few points, therefore, only allow credit inquiries that are absolutely necessary.  Using a mortgage broker for your mortgage application will allow you to have only one credit inquiry on your history that the broker can use for multiple applications to different lenders.  If you shop around yourself, you will find that each lender will want to perform a credit check on you, which could negatively affect your score.

5. Make sure you have a credit history.

Your credit score demonstrates your risk to the lenders in loaning you money.  However, if you are not a primary on a credit card or do not have a history of receiving and paying back credit, you may have a low score.  When applying for a mortgage, you would ideally want two sources of credit history in your name with at least $2,500 credit limit. This can include a line of credit and a credit card, or two credit cards.

Your credit history is a big part of your score so if you have old credit cards that you don’t use often, keep them open anyway, which will positively contribute to your score. If you have very few active credit facilities, cancelling a credit card can actually lower your score.

A mortgage broker can discuss your financial situation with you and help you build the strongest application possible.  Credit scores take time to build and changes on your credit report do not happen overnight so it’s important to contact your mortgage professional as soon as possible in the buying process.

Contact me today to discuss how I can help you build the best mortgage application for your situation!