To get a mortgage, you'll need to have a stellar credit score
When you begin shopping around for a mortgage the importance of your credit history and score becomes evident.
Your credit score is an important item that will determine what interest your mortgage agent will be able to offer you. It should be a priority because it can save you thousands of dollars. If you take care of your credit, your credit will take care of you! Whether you have had credit for a long time or are completely new and just beginning, the reality is that you will have to at some time or another prove that you are a low enough risk for lenders to lend to. If you are just beginning to build credit a good way is by using a credit card.
What is a credit report?
A credit report is a quick look into your credit history. If you have taken a loan or used a credit card you will have a credit history. Financial institutions, trust companies, credit companies and grantors that give you credit may send information about whether or not you make your payments on time to a credit-reporting agency/bureau.
Credit bureaus collect information about you and how long it takes you to pay back money you have borrowed. This is is called your credit history.
Credit lenders rely on a credit bureau to analyze an applicants current and past credit history in order to determine the likelihood of future repayment. This provides a fairly accurate indication of future repayment trends.
The two most popular credit bureau agencies operating in Canada are Equifax and Transunion. You can request your credit report by mail for free but your score is not included. If you request your credit report online a fee is charged and your credit score is included.
You are the only person who can see your credit report. No one else can access the information in your report unless you allow it. Generally you would allow credit checks to organizations you are applying to for credit. Usually you sign documentation allowing them to do so.
Whats in your credit report?
Personal information such as:
current and previous addresses
S.I.N., phone number
date of birth
Financial information such as:
lines of credit
loans and mortgages
bankruptcies, court judgements and backed secured loans which are considered public records and debt that was referred to a collection agency for payment.
A list of credit report inquiries: You, your lender, or any other authorized agent is also included which is usually used to determine if you are a credit seeker: someone who applies for a lot of credit.
How are you rated?
The credit agency describes your credit history by rating it. A scale of 1 to 9 is used with 1 meaning that you pay your bills within 30 days and 9 meaning you have bad debt, never pay your bills, have been placed for collection or claimed bankruptcy.
In front of the number there is a letter. The letter stands for the type of credit you are using. R means you have revolving credit such as a credit card, O means you have open credit such as a line of credit and I means you credit has been given on an instalment basis.
Your credit score is a numerical representation of the your current and past credit. It can range between 300 representing the lowest and 900 representing the best rating.
The breakdown that is used to determine your credit score is the following:
35 per cent Payment history
30 per cent Amounts owed
15 per cent Length of credit history
10 per cent New credit
10 per cent Types of credit
TOP TIPS ON KEEPING A GOOD CREDIT SCORE
1.) Make your payments in the correct amount on or before the due date! This will have a positive effect on your credit score. Missing or late payments and judgements, bankruptcies, collections or other public records will have an unfavourable impact on a credit score.
2.) Keep your balance considerably lower than the available credit limit provided. If you have several accounts with high balances relative to your available credit, this may indicate that you are relying greatly on credit to meet your daily needs.
3.) Multiple credit inquiries can lower your credit score, so reduce the number of credit applications you make.
4.) Always maintain a credit history. You can use a credit card to build a good history.
5.) The best mix of credit is a combination of a store credit card and a major credit card such as a VISA or MasterCard. It is important not to have too many credit cards or store cards as that may negatively impact a credit score.
A good credit report and credit score are important factors in determining whether or not you will be approved for a mortgage. Here are some simple steps you can take to maintain a good credit history, and improve your chances of being approved.
What is a Credit Score
Your credit score is a number that illustrates your financial health at a specific point in time. It also serves as an indicator of your financial past, and how consistently you pay off your bills and debts. This is one of the factors mortgage professionals consider in qualifying you for a mortgage.
How to Check Your Credit Score
To find out your credit score, contact Canadas two credit-reporting agencies: Equifax Canada at www.equifax.ca and TransUnion Canada at www.transunion.ca. For a fee, these agencies will provide you with an online copy of your credit score as well as a credit report a detailed summary of your credit history, employment history and personal financial information on file. You can also obtain a free copy of your credit report by mail. If you find any errors in your report, notify the credit-reporting agency and the organization responsible for the inaccuracy immediately.
If You Do Not Have a Credit Score
Its important to begin building a credit history as early as possible. You can begin to build one by applying for and responsibly using a credit card. Your financial institution or mortgage professional can help.
How to Improve Your Credit Score
Demonstrating your ability to manage credit is key to maintaining a good credit score. There are a number of things you can do to improve your credit score. These include: Always pay your bills in full and on time. If you cannot pay the full amount, try to pay at least the required minimum shown on your monthly statement. Pay off your debts (such as loans, credit cards, lines of credit, etc.) as quickly as possible. Never go over the limit on your credit cards, and try to keep your balances well below the limits. Reduce the number of credit card or loan applications you make. Once your credit score has improved, work with your mortgage professional to obtain a mortgage that works for you.
Find Out More
To find out more about credit scores and reports, visit the Financial Consumer Agency of Canada website and download or request a free copy of their guide, Understanding Your Credit Report and Credit Score. This guide provides practical, straightforward information on how to obtain and understand your credit report and score, as well as how to build and maintain a good credit history.
CMHC’s 2017 Mortgage Consumer Survey
In March 2017, CMHC completed an online survey of 3,002 recent mortgage consumers, all prime household decision-makers who had undertaken a mortgage transaction in the past 12 months. Sixty-five percent had undergone a mortgage renewal, 15% had refinanced their mortgage, and 20% had purchased a home with mortgage financing (11% First-Time Buyers and 9% Repeat Buyers). CMHC has conducted this survey since 1999. It is the largest and most comprehensive survey of its kind in Canada.
The Home Buying Process
Sixty-four percent of First-Time Buyers indicated they were renting before purchasing, and 34% lived with family.
Wanting to buy their first home (37%) and feeling financially ready (31%) were the most important reasons First-Time Buyers gave for purchasing a home in the past year. Low interest rates was the most important reason noted by Repeat Buyers at 33%.
Fifty-three percent of buyers were aware of the latest mortgage qualification changes, and 19% noted that it impacted their purchase decision. For example, 11% of buyers said they increased their down payment, 6% purchased a smaller home, 5% purchased in a dfferent location, and 3% delayed their purchase.
Buyers interact with a wide variety of people, and are most likely to consult a real estate agent (72%), or look to a family member or mortgage lender for advice (both at 57%). Forty-one percent reported interacting with a mortgage broker. Of all interactions, real estate agents were noted as most valuable.
Seventy-one percent of First-Time Buyers accessed savings for their down payment, while 18% received a gift from a family member.
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