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 measures your overall financial health and shows lenders the risk level they will take 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.

How to Boost Your Credit Score

If you are plagued with a bad credit score, there are ways to improve that number. Here are five tips to consider:

1. Make sure you have at least two forms of credit in use. Then, use each credit type 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. Use, at most, 35% of your available credit. For example, if you have a credit card with a $5,000 limit and a line of credit with a $9,200 limit, 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 keeping your oldest credit cards active, 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 a home. With time, effort and discipline, you can improve that number and set yourself 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. Doing so will ensure you are armed with the information (and down payment) you need to make this next exciting step.

For more information, please get in touch with me, Deborah Clerk, Real Estate Sales Representative, ASA, at Keller Williams Realty, Brokerage, to set up a time to chat. I love working with Greater Toronto Area buyers to help them make sound decisions to guide them home.