One of the main factors lenders consider before giving you a mortgage loan is your credit score.Your credit score can affect your rates and ability to qualify for a mortgage.
Your credit score is assigned to you from Canadian credit reporting agencies and range from 300-900, with 900 being the best possible score.
Your score is calculated based on multiple factors including:
- Payment History
- Length of Credit History
- Use of Available Credit
- New Credit
- Balances Owed
- Mix of Types of Credit
To improve or maintain your credit score, follow the 4 easy tips below:
Use 30% or Less of Your Available Credit
Using less than 30% of your available credit per month can improve your score as much as 25 points per month. Using this method for 6 months you would be able to increase your score by 150 points.
For example: A credit card with a $5000 limit, use $1500 of available credit on this card.
Have Two or More Active Tradelines
A trade line is a record of activity for any type of credit extended to a borrower and reported to a credit reporting agency. Having two or more active tradelines builds a credit history and shows the lender you can be responsible with your credit. Having a mix of multiple tradelines is ideal.
Examples of tradelines: Credit cards, line of credit, car loans, etc.
Make Payments On Time
Make all of your credit payments on time-or at least make the minimum monthly payments. Lenders will see you as more of a risk if you have had previous missed payments. Building a healthy, long credit history is important to building your credit score.
Limit Applying For And Cancelling Credits
It is normal and expected for a consumer to apply for credit and we do encourage having multiple tradelines. However, applying for too much in a short period of time may lead lenders to think you’re urgently seeking credit or attempting to live beyond your means. Cancelling your credit cards or reducing your credit limit can affect your credit score. If possible, try to keep your oldest credit cards open so you maintain a long credit history. Increase credit limits, while still keeping under the 30% useage to prove you can be resposible with higher credit limits.
For more more tips and in-depth credit counselling, contact Mortgage Teacher to set up an appointment with a Mortgage Agent.