Beginning your home ownership is a significant financial step that comes with great responsibility. To ensure you are able to support the mortgage you are interested in obtaining, there are numerous factors that go into the eligibility process.
One of the factors that gets considered is your credit score.
A sufficient credit score can help you to get the best possible mortgage rate, which can in turn save you money over the course of your loan. If you continue to get denied by traditional banks and major lenders due to your current credit score, or want to look for ways to improve your score before you apply for a mortgage, this blog will cover a few ways you can raise your credit score before beginning the mortgage approval process.
Let’s dive in!
Check and Understand Your Credit Report
There are two main credit bureaus in Canada – Equifax and TransUnion. Both of these bureaus calculate credit scores in a range of 300 to 900, with higher scores indicating a greater creditworthiness.
There are various ways in which your credit score is calculated, such as with car loans, phone bills, and other miscellaneous expenses in which you are obligated to pay back a set amount. With this financial history in mind, Equifax and TransUnion then compile them into a comprehensive credit report.
Each bureau offers a free copy of your credit report each year, that reflects your financial history. As you review these reports, make sure to examine them for any potential errors (such as in your personal information or accounts that do not belong to you), and that your report accurately reflects your financial history.
Once reviewed, you can begin to use this report as a stepping stone to see how you can improve your score.
Pay Your Bills On Time
Your payment history is one of the most important variables determining your credit score. Payments that are late or missed might have a negative impact on your credit score. To avoid having your score take a dip, ensure that each of your bills are paid on time (or early!).
Bills that contribute to your credit score include utility bills, credit card payments, student loans, and any outstanding debts.
By making these payments early, or at least on time, you are ensuring that your credit remains in good standing and that your financial history will reflect that.
Reduce Credit Card Balances
High balances in relation to your credit limit can have a negative influence on your credit score.
Paying down your credit card bills and avoiding maxing out your cards can help to keep your credit score in good standing, and at the least, improve it.
Avoid Taking on New Debt
Multiple new credit accounts and new loans opened in a short period of time can negatively impact your credit score. When you take on new debt, or ask for a loan, your credit score receives a hard inquiry, which can have a brief yet negative impact on your score.
If you are looking to begin your mortgage approval process soon, consider holding off on taking on any new loans or debt until after your mortgage process is complete.
Create a Budget & Manage Your Debt
Improving your credit score frequently involves making sensible decisions regarding your finances.
You can keep your financial situation in good standing by creating a budget, tracking your spending, and paying down your debts, all of which can help you maintain a solid financial standing, which in turn will increase your credit score.
By tracking your spending, you are able to see what expenses you make over the course of the month, and what expenses you should cut down on. By tracking the flow of your income in and your expenses out, you are able to narrow down the areas of improvement that need to be made before you apply for a mortgage.
Get Approved with Arise Mortgage
By understanding how your credit score is calculated and how it contributes to your mortgage approval process, you are able to dive into the mortgage process confidently.
At Arise Mortgage, we consider various factors beyond your credit score that contribute to your eligibility. If you are worried about your credit score and its influence on your mortgage, get in touch with our team today!