If you are ready to take a big step and purchase a home, you must have a good credit score. A credit score is one of the first things lenders will look at when approving you for a mortgage loan. But why does good credit even matter and what should you do if your credit score isn’t ideal?
Why Does Good Credit Matter?
Your credit score tells lenders about your financial habits. It either gives them confidence that you will pay back your loan or it tells them you are too much of a risk. Your credit score is comprised of several aspects. It includes your payment history and how well you pay your bills, your debt, length of time you have open credit, how many types of loans you have and manage, and how many times you have inquired or applied for new credit.
All of these factors combine to give you a credit score. In most cases, if your score is below 600 in Canada, many lenders will not approve you. Ideally, you want a score of 650 or higher. The higher your score, the better interest rate you may receive on your loan.
What if My Credit Score is Low?
If your credit score is poor, it may mean you must wait several months or even years to purchase a home. You may still be approved for a loan depending on your current finances and your work history, but you may expect high-interest rates.
To improve your score, one of the most important things you should do is request a copy of your credit report and go through it with a fine-toothed comb. You want to look for any errors or mistakes in the report that may be hurting your score. If you find mistakes, you need to report them immediately and dispute them with the credit reporting company.
Next, it is vital that you pay your bills on time. Late payments can ding your credit. If you have difficulty paying your bills, consider automatic payment options. Also, work to pay down your debt. The more debt you have, particularly consumer debt, the more difficulty you’ll have purchasing a home. Also, be mindful of the types of credit you open. Don’t agree to open store credit cards and loans if they are not necessary. While you want an assortment of credit options, don’t open these accounts just for the sake of it. You may end up hurting your score rather than helping it.
Once your credit score is good and you are approved to purchase a home in Collingwood, real estate agent Christine Smith is ready to help. Reach out to her today to learn about local listings and for answers to any of your real estate questions.