The importance of having a good credit score cannot be underestimated when you are applying for a mortgage. It can make or break the lender’s decision to approve or decline your application. Having a good credit history can also help you to get a lower rate of interest on your mortgage too. The average credit score in Canada is around 650.
Do you know what a lender looks for when they review your credit?
Each Financial Institution has alternative requirements
Requirements will vary from one lender to another, and they are not set in stone. Each lender will have a differing criteria to the next when they are assessing the risk levels. So if you have been declined for a mortgage with one lender, you may well be accepted with another.
Essentially, credit scoring is all about attaining a high rate, or score for your overall reliability as a borrower. Financial institutions will review this score to determine the level of risk that you pose if they were to lend you money. Typically speaking, a score above 650 is classified as a low risk, sub-600 and you fall into to the risky section. A major perk of having a higher score is the improved terms and favorable rates of interest.
How Lenders Check Your Credit
Borrowers will carry out a confirmation check by obtaining a copy of your credit profile. In Canada, there are two credit agencies, namely Trans Union and Equifax. They are looking for a solid track record of borrowing money and paying it back, from several different places. Even if your score is above 650, if you don’t have a reliable track record, you may not be accepted.
Ideally, there needs to be 2 years of traceable credit history although you can apply with just one. Regular, on-time payments made over a minimum of 2 different sources of debt, such as a loan or a credit card.
You need to get started right away if you have no credit in your name. If you can obtain a credit card, and only start by using it for small amounts, allowing you to pay the balance in full each month, then this will give you a real boost.
Your Credit Score and Your Credit Report
As mentioned earlier, the credit agencies will provide your credit report, again, these are Equifax and TransUnion. These are dynamic reports that are updated in some cases daily and can change quite often. These reports will take into account the last 6 years. You need these reports to show your credit history.
On the other hand, your credit score is an evaluation of your financial status. It can be utilized to determine the credit limits and interest rates. Your credit score is determined by following a specific process. Your score can change in line with data about your payment profile, any debts, the specific kind of credit you have taken out, such as a loan. It will also look at the number of searches that have been done by organizations on your report.
Check the Data
It is thought that about 65 percent of credit reports have errors and hold incorrect data so getting hold of a copy to check can be a really worthwhile task as there might be some quick wins in terms of correcting data before, rather than after you apply to get a mortgage. Your credit history could be better than you think.