You have just realized that it is finally time to become a homeowner, and that’s when you start doing some research. Most people, especially first-time buyers, don’t know the whole process, as they don’t teach you this in school. Not everyone will qualify for all lenders, rates, and terms. The main three things lenders will look at are your credit history, financial income and an inventory of your assets.
I know that I had no clue that your credit score determined how much of a loan you could qualify for, let alone that it defines the terms and conditions that go along with that loan. For example, the lower your credit score is, the more you will pay in interest. That can mean much higher interest rates when you are in a particular bracket for your credit score.
In Canada, there are two major consumer credit bureaus Equifax and TransUnion. A credit bureau is a firm that gathers and organizes information about your credit history; they get this information from creditors and lenders you have accounts with. The credit bureaus then take that information and combine it into a credit report which is then provided to banks and other financial institutions as a method of assessing your creditworthiness. Your credit report will summarize all of your activity, and then both bureaus will use their methods of calculating a credit score number that is unique to you. Your credit score can range anywhere between 300-900; the higher the score, the better you manage your credit.
There are many different factors that the bureaus take into consideration when they are determining your credit score. Credit age and mix, length of credit history, new credit applications, credit utilization, balances, and payment history are some factors. Knowing these factors can help significantly improve your credit score.
Improving your credit score is not as hard as you may think. Paying your bills on time is one of the more commonly known ways to improve your credit score. Another great way to bring up your score is to keep your credit utilization low. If you can keep your credit balances at 50% or less, that would be ideal. A common mistake is closing your credit card account after struggling to pay it off, as the longer, you have established your credit, the better. Another reason to keep the account open is that you will be reducing your available credit by closing. An additional essential component to your score is the types of credit; having both revolving accounts and an instalment account can improve your credit score. Another good tip is to avoid opening multiple accounts within a short period, implying a riskier consumer.
We recommend you also pull your Equifax and TransUnion reports yearly. Every year you are entitled to obtain a free copy of your credit reports from both bureaus. It is crucial to ensure that everything on their end appears to be accurate. If you need help reviewing the documents, we at Dominion Lending Centres NasaKasa are always here and ready to help. You must dispute any discrepancies that you find on your report as those could be mistakenly bringing down your score. If you are getting ready for house hunting and need some advice or help to improve your credit beforehand, make sure you give us a call. You can reach us at 905-997-7001 or email us at firstname.lastname@example.org to book an appointment to discuss your individual needs.