Why You Need A Good Credit Report To Buy A Home

credit history report

There are a lot of terms to understand when you are applying for a home mortgage. One of those terms is a credit report.

What Is A Credit Report?

A credit report is a summary of data involving your spending and credit history. It is more important than some people think. Potential landlords, employers, utility companies, and government agencies sometimes use this information, too.

What Information Does It Contain?

checking credit

Your credit report contains personal information such as your name and pseudonyms, birth date, social insurance number, recent and previous addresses, and phone numbers.

It also includes financial information like current and historical credit account types, balances, limits, payments, and the name of the lender. Public information like liens, bankruptcies, foreclosures, court proceedings, and child support payments may also appear on your credit report.

Who Compiles A Credit Report For Your Lenders?

Equifax and TransUnion are the two major companies that gather information on your spending habits. They use all of the collected information to compile reports used by banks and lenders so that they can give you a mortgage approval.

How Are Credit Ratings Scored?

A Person Holding Phone - rating

Credit rating scores are rated 280 to 850, with a 300 rating the poorest and 850 considered an excellent credit score.
About 35% of the rating considers payments and whether you have made late payments. Another 30% looks at credit card use and the balance vs. your credit limit. The remaining 35% of the credit score is based on your credit history, public records, and any inquiries into your credit file.

Inquiries within a short period are usually allowed because they know you may shop various mortgage lenders to secure your homeowner mortgage. Inquiries can affect your rating when you shop around for multiple credit card lenders (called hard hits). It can also happen because you are financially stretched, or perhaps because you have too many maxed-out credit cards.

How Can I See My Credit Rating?

You can ask for your free credit score at Credit Karma, or  though your bank. Even some online companies have a notification service for changes to your score to help you keep track. One thing to keep in mind is that the owing debt that you see, and the score may be off a bit.

In some cases, an account could owe a few hundred more than what the report shows. However, tools like this are still great to give you a base to work with and begin understanding your credit score.

Is My Information Safe?

safe, vault

There is a discussion about whether credit bureaus should have access to this information, but llenders state it is necessary to protect their investments.There are security features in place for online registrations, and they are regulated regarding the release of information complying with provincial legislation.

Why I Need A Good Credit Rating?

A better credit rating makes securing a home mortgage easier. Lenders like to see applicants have a mix of car loans, personal loans, and credit cards to indicate they can handle different kinds of credit. A good credit rating can also act as a reliability meter for signing a lease, securing a utility contract, or sometimes even works as a job character reference.

How To Improve Your Credit Rating

improvement graph

Some people have never borrowed money or signed up for a credit card, leaving them with no credit rating. This can negatively impact you when you do go to apply for credit. Without credit, it can be hard to build credit. Often, secured credit cards are your best first step to establishing a credit history.

Loans or mortgages are not approved until they establish a good rating.
What seems odd is you are required to go into debt to get approval for further financing. By taking out a small loan or credit card and making regular payments to build trust, they will pay off subsequent loans. A poor credit score does not mean denial of a home loan. However, you may have to pay a higher rate of interest on the mortgage.

It is also a good idea to review your credit reports yearly. Sometimes companies make errors about late payments or unpaid bills that can affect your rating. Maybe you are in mediation with that company over mistakes. You have the chance to contact the credit rating bureaus  and get them to investigate the error on your report and change the reason on your credit report itself.

The Alberta MoneyMentors organization offers many financial education and improvement courses and financial counseling. Money Mentors offers for online classes and some great info.

Watch Out For Credit Rating Repair Scams

Some companies will help you improve your credit ratings for a fee. However, not all of these offers are legitimate, and it is up to you to do your homework to see they are reputable for use.

Here Are Some Signs The Service May Be A Scam:
  • They Don’t Provide A Consumer Credit File Outlining Rights & The Credit Repair Process
  • A Business Name & Address Aren’t Provided On The Contract
  • They Don’t Offer Your Copy Of The Contract For Reading Before Signing
  • Costs, Actions To Be Taken & Completion Date Are Not Clearly Outlined
  • They Ask For Payment Before Services Rendered
  • The ‘Agency’ States They Will Remove The Errors From Your Report
  • They State You Need A New Social Insurance Number To Change Your Rating

Sometimes understanding everything about credit ratings can be confusing, so contacting a professional mortgage broker like The Mortgage Group is a good idea. Our Calgary mortgage brokers can explain the mortgage process and credit reports. We will help you gather the information you need to secure a home mortgage.

At The Mortgage Group Calgary, we are committed to providing the best experience to our clients. Call now to book an appointment with one of our brokers, (403) 571-8142.