When purchasing a home, one of the key components your bank or lending is going to take into consideration when arranging your financing or pre-approval is your personal credit score.
In Canada, personal credit scores range from 300 (no established credit history) to 900, which is the best possible score. According to TransUnion, the magic number for a credit score is 650, with other agencies even saying it’s as high as 760. If your number is at or below this range, it becomes more difficult to obtain approval for loans and could cost you more in interest.
Here are some steps to building or repairing your credit score:
1 - know your score. Services like Equifax or TransUnion will provide you with your credit score. It’s a good habit to get into checking this annually as it can also help you spot fraudulent activity early on your accounts.
2 - apply for an unsecured credit card.
3 - Apply for a mobile phone.
4 - Pay all of your credit card bills on time.
5 - Pay your balance each month, although some argue that carrying a small amount of debt, say 30 per cent of your total credit limit, might actually help your credit score climb faster as long as you pay the minimum due. This is because credit scores are for banks, and banks make money on interest payments.
6 - Never exceed your credit limit.
7 - Get different types of credit, like lines of credit in addition to credit cards and mobile phone accounts.
8 - Avoid store credit cards which often have very high interest rates and can actually drag your credit score down.
IMPORTANT TIP: If you’re building your credit score with the intent of obtaining a mortgage to purchase a home, avoid large ticket item purchases, such as vehicles or furniture. These can actually have a detrimental effect on your mortgage loan application!
You’ll also need time. Building or repairing credit is based on your payment history. It can take 6 months or more to start seeing improvement in your credit score.
Speak with a Real Estate salesperson, like Rebecca McGarvey or mortgage professional if you have any questions. They deal with this with every transaction that requires a mortgage and can help you make the best decisions to build your score quickly and get you in a place financially where you are able to purchase a home!