When you are looking to buy a home or refinance your existing home, lenders will consider your credit report and how it affects your ability to borrow money. Along with your income, your down payment or equity and your debt load, lenders will look at your credit score to qualify you for a mortgage.
Your credit score and how it impacts your ability to borrow money
Your credit report and how it affects your ability to borrow money should be a major factor in deciding if you are ready to buy a home or wait. When home buyers contact me to apply for a mortgage I always review their credit report with them along with the rest of their application before they start looking at homes with their realtor. If there are any issues with the credit history we can determine the reason for any issues, determine the next course of action and how it will impact moving forward for financing.
There are various factors on your credit report and how it affects your ability to borrow money. Consistent late payments, collections and bankruptcy have the biggest impact in dropping your credit score. Going over your limit on your credit cards will also drive your credit score down. I recommend to all my clients they maintain lower balances (below 65%) on all lines of credit or credit cards and make their payments on time or a few days before they are due. If you are responsible and consistent in how you use credit your score will reflect this and the lender will be more flexible on your application.
I also recommend keeping at least 2 trade lines (credit card, loan or line of credit) open to improve your credit score. I always suggest a history of 2 years of 2 active trade lines with a minimum of $2000.00 is ideal in creating a good credit score. The credit bureau will look at the date you opened the credit card or line of credit and the longer you have been using the credit – the better. Keeping the same credit card for several years with consistent payments gives you credibility in the eyes of the lender.
My advice for anyone looking to buy a home is to pull your own credit report via www.equifax.ca and if you have any issues talk with your mortgage broker. There is no impact on your credit score if you pull it yourself. Each time a bank pulls your credit report it drops your score a little. So if you have many lenders and brokers pulling your report over a short time period it could affect your score. That is why it is important to check it first yourself and then talk to your broker to pull it at application. By only pulling your credit report once and looking at all your options you only have one hit on your report for the application.
For more details on credit scores and tips on how to manage your credit visit http://www.mymoneycoach.ca/credit_rating/what-is-credit-score.html