Vital information you need to know before applying for a mortgage.
Your credit score is the single biggest factor that lenders use in determining your mortgage interest rate. Yet most people don’t even know what a credit score is, let alone whether they have a high score or a low one or credit check. The sad truth is if your score is unnecessarily low, due to errors or lack of professional advice—you could end up paying thousands of dollars extra over the life of your mortgage loan! As your local mortgage broker serving Mississauga, Oakville, Toronto, and GTA , I’m committed to helping you make your home financing as affordable as possible with fixed rate or variable rate mortgages. Over the years, while helping clients in a wide range of credit situations, I’ve developed a list of 12 easy steps that are proven to boost your credit score. Remember, just a small increase in your score can reduce the rate you pay on your next mortgage when buying a home. No matter what kind of credit situation you’re in, I can help ensure your credit score is the best it can be, so you can get the mortgage you need at the rate you want!
- First, let’s review how the credit reporting system works.
- How credit reporting agencies keep track of your financial situation.
Credit information is gathered by credit reporting agencies, also known as credit bureaus. There are two main credit reporting agencies in Canada: Equifax and TransUnion. Here’s what they do:
Store and maintain credit information about consumers
- Gather the information from companies that offer loans or credits.
- Make the information available to banks, finance companies, auto leasing companies, credit card companies, and retailers, who use it to grant credit
By seeing how you’ve managed credit in the past, mortgage lenders can decide whether or not they should approve your application for new credit especially when it comes to real estate. One of the decision-making tools the credit reporting agencies provide to lenders is a credit score, sometimes called a credit rating.
How does your credit score help determine what your mortgage rate will be?
Your credit score is a three-digit number that lenders use when evaluating your application for credit. It provides a summary of how likely you are to repay a loan based on how you’ve managed your credit obligations in the past. Here’s what you need to know about credit scores:
A number between 300 and 850 that represents the information in your credit report at a particular point in time
Calculated based on your payment history, how much you owe, how long you’ve had credit, how often you apply for new credit, and the types of credit you have.
The higher your score, the lower the risk for the lender
- Your score needs to be over 680 to qualify for prime loans at the lowest interest rate along with other terms and conditions.
OK, now that you know how credit scores work, it’s time to look at your own credit report.
ONLY BY SEEING WHAT THE LENDERS SEE CAN YOU DETERMINE IF YOUR CREDIT RATING NEEDS TO BE IMPROVED!
In Canada, you have the right to see your credit report for free. There are two ways to access your report:
- You can obtain it for FREE by mail or in person
- OR you can download it immediately for a fee
To find out how to; visit Equifax.ca or TransUnion.ca Do it now. Do it regularly!
Because your credit report is constantly changing, it’s essential to check your credit files at least once a year to ensure the information is correct. If you’re planning to make a major purchase or apply for a mortgage, CHECK YOUR REPORT 3 MONTHS IN ADVANCE to make sure there aren’t any inaccuracies that can damage your credit score.
Of course, the complicating factor is that there are two credit reporting agencies, and they each report on a slightly different group of creditors. This means every time you check your credit report, you have to check BOTH of them. But remember, both reports are FREE if you leave enough time to request them by mail.Now that you have your credit reports, what should you look for? Go through each item and make sure it’s accurate. Do you really have a credit card with the company listed? Were you actually late with that payment? Did you really miss a mortgage payment?
If you find an error, here’s what to do:
Try contacting the specific creditor or lender first. If you both agree a mistake has been made, ask them to correct it and send an update to the credit reporting agencies.
If you can’t make progress this way, go directly to the credit reporting agencies. They’re required to investigate it on your behalf. Send them any receipts or documents that support your claim.
If an error is confirmed, the credit agencies must correct it. Once your file is corrected, the agencies have to provide the updated information to all of the creditors that you identify.
Protect yourself from identity theft too!
Not only can correcting errors in your report improve your credit score—which can reduce your rate on an upcoming mortgage—it can also detect attempts at identity theft. Today, it’s increasingly common for fraud artists to acquire a piece of a consumer’s ID, and use it to apply for credit. Unless you’re keeping a regular eye on your credit report, you may not know you’ve been the victim of identity theft until it’s too late!