Is My Credit Score Good Enough For A Mortgage?
When was the last time you checked up on your credit score? If you’re thinking of buying a home, now might be a good time to do so. In this article, we go over how a credit score impacts your ability to get a mortgage. You’ll find out what a good credit score is and ways to improve it so you can qualify for a mortgage the first time.
HOW IT’S CALCULATED
They calculate credit scores based on what you do with your available credit. Payment history makes up the highest percentage at 35%. In other words, your history plays a big role, and it’s important to keep up with your regular payments. This includes credit cards, lines of credit, and car or student loans.
HOW YOU USE YOUR CREDIT
The next important factor in calculating a credit score includes how much you owe. Depending on your current payments for various loans, your lender will determine whether you can take on more. For example, you could be maxing out on your credit cards. A lender may see this as high risk because they don’t believe you can pay for a new loan on time.
Credit utilization looks at the percentage of the debt you have compared to the available credit. Staying below 35% of your available credit shows you’re not maxing out and can help you achieve a higher credit score.
CREDIT HISTORY
Other factors that go into calculating a credit score include the length of your credit history. The longer the history, the easier it is to build a solid credit score.
The amount of new credit applications also plays a role. For example, opening multiple new credit accounts could reduce your score because it shows a struggle in keeping up with payments.
Lastly, the type of credit used, and any record of bankruptcy, are also considered.
WHAT IS A GOOD CREDIT SCORE?
Here is a breakdown of credit score standing based on Equifax’s scoring system. Scores between:
- 300-559 Are Poor
- 560-659 Are Fair
- 660-724 Are Good
- 725-859 Are Very Good
- 760-900 Are Excellent
In Canada, Equifax and TransUnion are the two main credit bureaus. Although both calculate their scores slightly differently, they help provide the same information. Banks, credit card companies, insurance companies, landlords, employers, car leasing companies, and retailers can then view your information.
Most major banks allow you to view your score for free online. Periodically checking your score will give you a better idea of where you stand and how to improve. For a more in-depth report, you can request one from Equifax or TransUnion. In addition, you can request to see your credit report. This report provides information on your payment history, bankruptcies, types of credit, and more. Obtaining a credit report will not impact your score.
WHY CREDIT SCORE MATTERS
Credit score matters because it shows how trustworthy you are. From a lender’s perspective, they only want to work with those they know will make their payments on time. In other words, you’ll have more options, flexibility and likely be approved for your mortgage with ease.
The higher your credit score, the more likely a mortgage broker will be able to find the lowest rate available. In the long run, this can help save thousands on your mortgage payments.
Although it varies, credit scores above 650 allows your mortgage broker to obtain a mortgage approval from a Prime lender. Scores above 650 mean you are a lower-risk borrower, and lenders will be more willing to give you a loan. If you feel like yours could improve, there are a few ways to help increase your credit score.
HOW TO INCREASE YOUR CREDIT SCORE
The simplest way to increase your credit score is to pay your bills on time. This includes credit cards, cell phones, student loans, or car payments. Skipping or paying late will reflect poorly on your overall score. If you cannot make your payment on time, contact your lender. They may extend your payment due date.
As mentioned earlier, a good score means having a longer credit history. Even if you have a credit card you hardly use, don’t cancel it. The longer the credit history, the better chances you’ll have of building a better score.
QUALIFYING FOR A MORTGAGE
Although credit score matters, it accounts for only part of the big picture. Throughout the mortgage preapproval process, you want to maintain a good credit score as well. If possible, wait to apply for new credit. This includes buying a new car, appliances, or any other loans because they will increase your total debt. Avoid applying for multiple mortgage applications in a short period. This could flag you as a credit seeker. A mortgage broker has access to numerous lenders and will be able to find you the lowest rate available.
TALKING TO A MORTGAGE BROKER
A mortgage approval can take anywhere between two days to two weeks. However, working with a mortgage broker can help make the process faster and easier. If you’re not sure where your overall standing is for getting a mortgage approval, they can help. They can help you see the big picture by taking in all factors, including your credit score. In addition, they’ll come up with a customized plan for your mortgage preapproval and give you the right advice to get you on the right track.
Are you ready to apply for a mortgage? Contact us today to talk to any one of our experts here at The Mortgage Group Inc.