More and more Canadians are at risk of being declined credit by mainstream lenders because of a poor credit score and this prevents them getting a loan they deserve for a car, house or their business. You could have a good occupation, enviable salary, and sizeable deposit but yet be declined for a mortgage because you missed a $70 payment on your cell phone bill, if not paid within 30 days of receiving the bill.
Credit scoring is a computerized decision based on the conduct of your finances. A low credit score can have a direct impact on your ability to obtain a mortgage from lenders.
It’s not just poorly conducted credit that leads to poor credit scores. The computer searches for a credit footprint left by your transactions with other institutions. If there are no transactions are registered, it can be equally as damaging as one which you have had a couple of late payments on.
There are no big secrets when it comes to maintaining a good credit score, but there are a few tips I can share with you that will help establish yourself on the credit map.
1) Apply for a credit card and make small transactions
One of the best ways to improve your credit score is to use take out a credit card, and use it regularly and responsibly. If you’re not already making payments on a short-term loan, putting your regular expenses such as groceries and gas on a credit card helps you establish credit without going into debt. Simply pay off your credit card bill in full and on time each month, and the card issuer will report your payments to the credit bureaus. By paying in full, you also won’t have to pay interest.
2) Set up direct deposits for all major payments each month
Paying your bills late indicates to lenders that you may be a financial risk. By setting up direct deposits for all major payments each month, you limit the chances of forgetting to pay your bills on time. Be sure to check that there are enough funds in your account to avoid the payment returning as non-sufficient funds for which your account will be reported as delinquent to the credit bureau.
3) Apply for an overdraft with your bank
Fortunately, bank overdrafts won’t affect your credit score if you pay them down within a timely manner or have the intention of never using it. If you ignore the bank’s attempts to get your account back in good standing, your debt may be sent to a collection agency and listed on your credit report. Only then will the overdraft hurt your score.
4) Open one new line of credit at a time
If you are applying for a car loan or mortgage within a time period, inquiries made to your credit bureau are considered soft inquiries and have minimal damage to your credit rating. It’s strongly advised that you avoid the ‘payday’ loan style as these have the opposite effect. However, if there are multiple inquiries for store cards, credit cards, lines of credits, loans etc. over a longer period, the credit bureau looks as this as “constantly seeking credit”. When working with a Mortgage Broker or Auto Loan Broker with only one credit inquiry, the broker has access to multiple lenders at once.
Before applying for a mortgage, we recommend that you take the time to build your credit score as your credit score plays a major role in determining how much a lender will allow you to borrow, the interest rate that you’ll be able to get on your mortgage, or decide whether you’ll be approved for a mortgage at all.
Want to learn more? Visit our Bad Credit web page to learn how to improve your credit score or contact Bad Credit webpage to learn how to improve your credit score or contact 604-614-6899, to discuss flexible mortgage options to meet your needs.
