by Multi-Prêts Mortgages
What you’ll learn
In today’s world, and in light of recent data theft scandals, more and more consumers are looking into their credit score. After all, this deceptively simple piece of information plays a key role when it comes to pursuing important projects, such as buying property. If your credit score is low, you may have more difficulty getting a mortgage for the home of your dreams. Fortunately, there are several simple steps you can take to improve your score relatively easily.
Before you can think about improving your credit score, you need to look over your credit report. You can request a free copy from Equifax Canada and TransUnion Canada by providing copies of two pieces of ID, such as your passport or driver’s licence.
In addition to your personal information, your free credit report will include information about your various loans and bank accounts. It may also contain information that adversely affects your score, such as bankruptcies, NSF cheques issued in your name, and outstanding debts.
However, you won’t find your actual credit score. Accessing it costs around $25. Keep in mind that if you get a mortgage pre-qualification at Multi-Prêts, you can view your credit score for free (without affecting it).
Mistakes happen, and one may have slipped into your credit report. If you find an error, take action immediately. Why? An inaccurate credit report can prevent you from getting a loan.
To correct an error, contact Equifax Canada and TransUnion Canada. You’ll need to back up your claim with the necessary supporting documents, such as your credit card statement. Often, notifying your creditor of the situation saves time, as they can quickly provide up-to-date information to credit bureaus.
Much more than just a number, your credit score—which can also be calculated as a FICO Score—is taken into account every time you want to borrow money. Consisting of three numbers between 300 and 900, the score, which is an objective overview of your credit report, helps your potential creditor determine the risk involved in granting you a loan. It allows them to determine the total amount of your loan and its interest rate. Generally, scores of 760 or higher are considered excellent, while scores between 300 and 559 are considered poor.
How you manage credit is also evaluated using a code consisting of a letter, usually R, and a number ranging from 1 to 9. For example, R1 is the best credit rating and indicates that you pay your bills on time (within 30 days), whereas R9, the worst rating, indicates a bankruptcy or that your file has been sent to a collection agency. Ideally, you want a rating of 1 for each of your loans. Of course, your credit rating is not set in stone; it changes over time. Actions demonstrating responsible credit management will boost your score, while improper credit usage will have the opposite effect.
Evidently, paying your bills on time is one of the best ways to ensure a good credit score. If you often forget to make payments, consider setting up automated payments from your bank account. For instance, they could be biweekly.
For credit cards, pay at least the minimum amount every month. If possible, pay the entire monthly balance as soon as the statement is issued, a practice that will quickly increase your score. Here’s a tip: only use your credit card to make purchases you can pay back in the short term.
Do you have multiple credit cards? Try to keep only one or two. Choose those that you’ve had the longest and were issued by major creditors, as these cards have a positive impact on your credit report. Pay off any other credit cards you have, including store cards, starting with the highest-interest balance.
Creditors have a negative view of consumers who overuse their credit. According to the Government of Canada, you should aim to use less than 35 percent of your available credit (e.g., lines of credit, credit cards, or loans). For example, if you have a $5,000 line of credit and a credit card with a $5,000 limit, your borrowings should not exceed $3,500.
Finally, don’t hesitate to get a line of credit. This type of revolving credit is often more advantageous than other types of loans and can impact your credit score. It’s easy to manage, and you only pay interest on the amounts withdrawn, not the total amount of the loan.
Here’s another important tip: try not to submit more than three credit applications per year. A high number of inquiries on your credit report could make creditors believe that your lifestyle is too extravagant for your budget.
For example, if you spend weeks shopping around for a mortgage at various financial institutions, the number of credit inquiries associated with your file is likely to increase. Fortunately, if you work with a Multi-Prêts broker, you can avoid this kind of problem, since their dealings with financial institutions count as only one credit inquiry.
Do you already own property? Your broker can also help you improve your credit score by consolidating your debts. By refinancing your property, you can put up to 80 percent of its net value toward paying off high-interest debts, such as credit cards. You’ll have smaller monthly payments, pay less interest, and have an easier time managing your bills. Ultimately, you’ll be in an ideal position to improve your credit score!