Your credit score is considered by lenders to be an important indicator of your financial health. A high credit score offers many advantages to those who are on the market for a home. Being aware of the significance of your credit score can help you to prepare to purchase a home so that you do not have trouble getting approved for a mortgage loan once you have found the right property. There are many steps you can take to ensure that your credit score is high when you're looking for financing, and even those with a low score can remedy the situation by putting some effort into credit repair.
What is a Credit Score?
A consumer's credit score is typically a number between 300 at 900. Credit scores in Canada are reported by two different credit bureaus: Equifax and TransUnion. Typically, a would-be homeowner will need a score of at least 500 to be able to acquire a mortgage loan.
Your credit score shows a variety of factors related to your spending habits, including how heavily you rely on your available credit and how reliably you make payments on loan and credit card accounts. It is estimated that about a third of one's credit history is determined solely on the basis of how reliably a consumer makes payments on time. Approximately another third of the score is determined by what the consumer owes in relation to how much available credit he or she has. Other factors that influence your credit score include how long your credit history is and how frequently you apply for new credit accounts.
Impact on Mortgage Rate
Lenders are not going to want to loan out money to consumers who may not be able to pay the money back as agreed in the mortgage loan agreement. As your credit score is meant to give lenders an idea of how likely you are to repay a loan, you may be refused a mortgage loan if your credit score is below 500.
Even if you score at 500 or above and are approved for a mortgage loan, your credit score will impact the interest rate that goes along with your loan. Credit is more expensive for those with a lower credit score. Those who are shopping for homes need to have a score of around 700 to take advantage of the best possible interest rates. It's important to understand that your mortgage loan will stay with you for a long time. Therefore, it might be best to wait until your credit score goes up so that you can enjoy a mortgage loan with a lower interest rate rather than taking out a mortgage loan immediately with a higher interest rate.
Finding Out What Your Credit Score Is
If you want to know what your credit score is, you can simply inquire with one of the two major Canadian credit bureaus: Equifax and TransUnion. These credit bureaus will typically be able to provide you with your credit score either by phone, mail, fax, or e-mail. However, you may have to pay a fee to be able to see your credit report.
Rebuilding Your Credit
Credit scores constantly change over time. If your credit score is low, you can take some time to improve it by paying off any outstanding debts, making payments on time, and never going over your credit card limits. Although it takes some patience, credit can be rebuilt and reestablished even after major credit issues such as bankruptcies and account defaults. By developing the right spending strategy, you can prepare your credit score for a home purchase.
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