Credit Score 101
Posted on Sep 15, 2012 in Mortgage Market Updates and News
Having a strong credit score is essential to getting a mortgage, or obtaining a loan. Many people have little to no idea how credit works, let alone what their personal score is. Knowing where you stand in terms of your credit can save you a lot of time, hassle, and frustration when it comes to applying for a mortgage, and can put you into a stronger bargaining position going in.
Your credit rating is a reflection of the money you've borrowed, and ability and history of paying it back. Do you make payments on time? Do you max your credit cards? Can you afford the debt you have? How often do you apply for new credit? How long does it take you to repay your loans? These are all factors that effect your credit score.
We have two credit reporting agencies in Canada that your lenders report your debts to, Equifax (the main one for mortgage purposes), and Transunion. It's important to keep on top of what these agencies have on your file, to stay in the know, and be aware of any discrepencies or errors. You can order a free credit report once per year, by contacting the agencies directly.
Credit scores range from 300-900 with the Canadian average being around 650. For mortgage lending, the minimum score you need to get a mortgage with best rates is typcally 600, although some lenders have much higher requirements. Credit over 680 is considered strong with over 700 being excellent. While your score is very important to a loan application, there is more to a credit report than just the score. It's important to have well established good credit, not just good credit. This means it's not enough to have one credit card that you've paid well for the past year, lenders want to see that you've been exposed to a sufficient amount of credit, for 2+ years, so that they can see you really understand how to deal with it.
Items stay on your credit for up to 7 years, so it's very important to keep on top of things, not miss any payments, don't let those parking tickets go to collections, etc, as these things can have significant impacts on your ability to get a loan. Call Sharie Marie Francoeur, Mortgage Professional with TMG The Mortgage Group Canada before you start looking for a home, to see what your credit is like. Bad credit doesn't always mean you can't get a loan, but sometimes it means you'll pay more. So the sooner you find out what your credit's like the better as sometimes a short term plan to repair your credit can be made. Which could save you money in interest, or be the difference between getting approved or not getting approved.
-Sharie Marie Francoeur, Mortgage Professional with TMG The Mortgage Group Canada Inc 250.730.0239 firstname.lastname@example.org