Your credit rating affects all aspects of your financial activities when it comes to borrowing money. Your credit rating also has the ability to affect the job you get, the apartment you rent, and even the ability to open a bank account.

One of the important factors in home ownership is understanding things like your credit score.  Some people don’t pay much attention to this metric until they begin the mortgage discussion! However, you will find that your credit score is one of the most important factors when it comes to qualifying for a mortgage at the best rate – and with the most purchasing power.

Your credit report itself is simply a listing of all of your mortgage and consumer debt. Here in Canada, the two main credit reporting agencies are Equifax and TransUnion. Both agencies have a credit history file on anyone who has ever borrowed money. Every time you borrow money, or make a payment on a loan or credit card, the lender then reports the information about the transaction to these two agencies. In addition to credit information, you will also find liens and judgments on your credit report as well as your address and possibly your work history. The accumulation of all of this information is called your credit report.

The information on your credit report varies based on your creditors and what they have reported about you. Potential lenders and others, such as employers, view your credit history as a reflection of your character. Whether we like it or not, our financial habits have a lot to say about the way in which we choose to live our lives.

The credit score — Beacon score or FICO score, is a number which gives mortgage lenders an idea of your lending risk. Credit scores range from 300 to 900, the higher your credit score the better. The mortgage products and interest rate that you will qualify for are often determined by your credit score.  Whether you qualify for a mortgage through a bank, credit union or other financial institution, you should be aiming for a credit score of 680 for at least one borrower (or guarantor), especially if you are putting less than 20% down payment.

WHAT IF I DON’T MEET THE MINIMUM CREDIT SCORE?

If your credit score is accurate, but does not meet the minimum requirements, you will want to look at your current debt. Home ownership is an incredible investment, but it is also costly. Fortunately, there are a number of things you can do to improve your credit score as well as your future financial success, including:

  • Paying your bills in full and on time. If you cannot afford the full amount, try paying at least the minimum required as shown on your monthly statement.
  • Pay off your debts (such as loans, credit cards, lines of credit, etc.) as quickly as possible. Work on paying the ones with the smallest amount owing first and work your way towards the larger amounts.
  • Stay within the limit on your credit cards and try to keep your balances as low as possible.
  • Reduce the number of credit card or loan applications you submit.

There is also the option of going with an Alternative Lender (or B Lender) if you are struggling with credit issues.

The good news is that your credit report is a working document. This means that you have the ability over time, to repair any damaged credit and increase your credit score.