11 Aug How do I ensure my credit score enables me to qualify for the best possible rate?
How do I ensure my credit score enables me to qualify for the best possible rate?
Planning to buy a home and wondering how to ensure your credit score remains in good standing? Here are 5 tips from Reni McNeil of Mortgage Brokers Ottawa:
1. Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits.
2. Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there’s a balance at the end of the month, this affects your score – credit formulas don’t consider the fact that you may have paid the balance off the next month.
3. Check credit limits.If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. The best bet is to pay your balances down or off before your statement periods close.
4. Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off.
5. Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.
What is a credit score and how does it impact you when buying a home? Here is some information from the Equifax website: (Equifax is one of Canada’s credit bureaus)
What is a Credit Report?
A credit report is a summary of your credit history. Your credit report can help you qualify for a new mortgage. Potential creditors and other businesses may use the information on your credit report when deciding whether to approve your credit application — and at what interest rate.
There are two nationwide credit reporting agencies in Canada — Equifax and TransUnion. They both maintain consumer credit reports containing information reported to them by lenders, creditors, and other sources. Some lenders may report information to both agencies, just one, or sometimes none at all.
Your Equifax credit report contains four types of information
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Identifying information: This section includes your name, address, and date of birth, and may also include employment information and your Social Insurance Number (S.I.N.). This information is not used to calculate credit scores.
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Credit accounts, also known as “tradelines”: These are accounts that you have established with creditors and generally contain the type of account (for example, a credit card, mortgage, or auto loan), the date you opened the account, your credit limit or loan amount, the account balance, and your payment history.
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Inquiry information: This section lists every time your credit report was accessed and by whom. Each request or access to the credit report is called an “inquiry”. There are two categories of inquiries: hard and soft inquiries. Hard inquiries are the result of a lender or company checking your credit reports as part of a loan application and they may impact your credit scores. Soft inquiries can result from you checking your own credit reports and other non-credit related access and don’t impact your credit scores.
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Bankruptcy, consumer proposal, court and collections information: Public court record information reported to Equifax, bankruptcies, and consumer proposals are also listed on your credit report. Past-due accounts that have been turned over to a collections agency could also be included on your credit report.
Your credit score is calculated using the information on your Equifax credit report at the time the score is calculated.
In summary: Lower credit scores can potentially limit how much money you can borrow to buy a home and can potentially lead to higher interest rates. Before you begin the home buying process, check your credit reports and credit scores to get an idea of how healthy your credit may be, as well as to review the information being reported by lenders and creditors. You can access your credit report online for free from Equifax and TransUnion.
We are always happy to assist and answer your questions or discuss the Ottawa market with you. We are real estate agents in the greater Ottawa area with the expertise to help you find a home in the neighbourhood of your dreams!