Home Buying Advice: 5 Ways to Improve Your Credit Score
Wednesday Aug 30th, 2017
One of the things that lenders consider when deciding whether or not you are a good candidate for a mortgage loan is your credit score. This number is a measure of your overall financial health and shows lenders the level of risk they will take on if they give you a loan.
Credit scores range between 300 and 900. Anything above 700 shows that you manage your credit well and should make a lender feel comfortable approving your loan. A lower credit score, however, shows that you have mismanaged your credit, thus increasing your risk.
If you are in an unfortunate situation where you are plagued with a bad credit score, there are ways to improve that number. Here are five ways to consider:
1. Make sure you have a least two forms of credit in use at all times. Use each credit facility every month and pay off the balance in full.
2. Always make your payments on time and pay at least the minimum amount. If you can’t make the minimum, let your lender know right away, as they may be able to accommodate an extended due date.
3. Do not to use more than 35% of your available credit. For example, if you have a credit card with an available limit of $5,000 and a line of credit with an available limit of $9,200, do not borrow more than $4,970 ($5,000 + $9,200 x 35% = $4,970) at any given time.
4. Establish a long credit history by not cancelling your oldest credit cards, even if you rarely use them. The longer your credit history is, the better your credit rating will be.
5. Limit how frequently you apply for credit. The more times you apply for new credit, the worse it looks to lenders.
The bottom line: Don’t let a bad credit score get in your way of buying your next dream home. With time, effort and discipline, you can improve that number and set yourself up on the path to homeownership.
In the meantime, it’s always wise to speak with an experienced realtor and a mortgage lender to learn how much house you can afford, so that you are armed with the information (and down payment) you need to make this next exciting step.
For more information, please feel free to contact me to set-up a time to chat. I love nothing more than working with Greater Toronto Area buyers to help them make sound decisions to guide them home.