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The-Mortgage-Gal

Improve your credit score

It can be frustrating to find out that your mortgage application has been affected by a low credit score or potentially incorrect information reporting on your credit report.

If you have had problems with credit in the past, tell your mortgage specialist right away. They can then review your credit report and offer suggestions and advice as to how to improve your score, as well as possible options (ie: larger down payment, co-signer, etc).

When you apply for a mortgage, your mortgage specialist will pull your credit report. What they are looking for is your Beacon score.

A Beacon score (also called a credit score) is a rating used to rank your credit-worthiness. This number tells lenders how likely it is that you will repay your mortgage.

In Canada, we have two credit reporting institutions: Equifax and TransUnion.

Your beacon score is a very important part of the application process. Beacon scores range from 300 to 800 plus, with the average Canadian scoring in the 700 range. The minimum credit score for insured mortgages (less than 20 per cent down payment) is 600.

Most lenders require that your score be 680 or higher. 

Beacon scores are calculated based on several factors. Here is a quick overview:

PAYMENT HISTORY — Factors in the frequency of, and number of, payments over 30 days late, collections, judgments, and bankruptcies. A single 30-day late payment can drop your score 15-20 points.

CURRENT DEBTS —  Considers how much you owe (in absolute terms and compared with your credit limits), how many creditors you owe money to, and how much you could owe if you obtained all your available credit.

AGE OF ACCOUNTS — The longer your accounts have been open the better. The minimum requirement (in most cases) when applying for a mortgage is two active accounts that are at least two years old.   

TYPE OF CREDIT — Bank loans, credit cards, and revolving credit accounts all impact your score differently.

CREDIT INQUIRIES — Numerous credit applications in the past 12 months affect your score significantly and is definitely not advised. This is the advantage of using a mortgage broker as your credit is only pulled once for multiple lenders. 

Accounts such as cellphones, loans, credit cards, mortgages and some utilities report your payment patterns. It is crucial that you make all of your minimum payments on time to ensure your credit score stays high.

It is also important to try not to carry significant balances on your credit cards or lines of credit. Having credit available, but unused helps increase your credit score.

Many people don’t realize that having creditors access their credit report can actually lower their score. If you are an avid credit seeker (applying for numerous credit cards, or at multiple car dealerships), this will be reflected in your score.

Often when you pop in to try out a vehicle, the dealership pulls your report while you are out on the road. Make sure you read the fine print before you sign off to go for a test drive.

I recommend that you check your credit report annually to ensure that everything is being reported correctly. Identity theft is much more common than it used to be, and by checking yourself you may catch this early.

If you have a common name, you may see someone else’s information showing on your credit report. If you find this to be the case, it is important to contact the credit bureau to have it corrected as soon as possible.

If you pull your own credit report, it does not affect your score. If a creditor pulls your credit report, it can drop your score a few points.

HOW TO IMPROVE YOUR CREDIT SCORE

If you have had credit difficulties in the past, there are ways to improve your score. There are no easy fixes, so beware of companies that promise they will help you improve your score quickly.

Unfortunately there are many companies out there that charge significant fees but don’t deliver.

Here are some suggestions from the Office of Consumer Affairs that will help bring your credit score up:

  • Always pay your bills on time. Although the payment of your utility bills, such as phone, cable and electricity, is not recorded in your credit report, some cellphone companies may report late payments to the credit-reporting agencies, which could affect your score.
  • Try to pay your bills in full by the due date. If you aren’t able to do this, pay at least the required minimum amount shown on your monthly credit card statement.
  • Try to pay your debts as quickly as possible.
  • Don’t go over the credit limit on your credit card. Try to keep your balance well below the limit. The higher your balance, the more impact it has on your credit score.
  • Reduce the number of credit applications you make. If too many potential lenders ask about your credit in a short period of time, this may have a negative effect on your score. However, your score does not change when you ask for information about your own credit report.
  • Make sure you have a credit history. You may have a low score because you do not have a record of owing money and paying it back. You can build a credit history by using a credit card. 

If you have had credit issues in the past, don’t despair. Although you may not qualify for a mortgage right now, by following a structured plan it is possible to get yourself back on track.

It will take time, patience, and dedication, but the end result of owning your own home will be worth it.

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About the Author

Laurie Baird and Tracy Head are mortgage brokers with Verico Complete Mortgage Services. Together they have over 45 years of experience in the mortgage industry.

As mortgage brokers, Laurie and Tracy spend time getting to know the people they work with and help them understand the mortgage process. They support their clients before, during, and after a home purchase.

Laurie and Tracy are able to offer their clients advice and options. With access to over 40 different lenders, Laurie and Tracy are able to match the needs of their clients with the right mortgage package. They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit:
http://www.okanaganmortgages.com

Visit Laurie's blog at: https://www.okanaganmortgages.com/blog



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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