Protecting Your Reputation: Understand Your Credit Report and Credit Score
There is an incredible array of mortgages now available to Canadians. What many borrowers don’t realize is that the pricing of mortgages and other loans is based in part on their credit-worthiness.
Consumers need to be aware of how their credit is evaluated by lenders, and how they can work to avoid so-called “bruised credit.” The good news is that by taking a few basic precautions, prospective borrowers can protect their credit report and credit score.
Both your credit report and score are important. When deciding whether or not to grant a mortgage loan, lenders refer to an applicant’s credit report and score, along with a range of other factors such as income, employment history and down payment size.
Generally, a credit score uses your past credit history to predict how you might manage your credit in the future. The credit score used most often by Canadian lenders is the FICO score, which is a number between 300 and 900. The higher your score, the more likely you are to be approved for a mortgage.
Several factors are used to calculate credit scores:
- Debt payment history;
- Amounts owed compared to your current credit limits with lenders;
- How often you seek new credit;
- Length of time you have had credit accounts;
- Type of credit. Try to stay clear of high-interest lenders; and
- Recent new credit.
Fortunately, there are steps consumers can take to keep their credit report and credit score healthy:
- Pay your debts on time – always meet due dates;
- Borrow only the amount you can afford to repay;
- Numerous inquiries for your credit report can sometimes worsen your score. However, multiple inquiries within a 30-day period for car or mortgage loans are ignored; and
- Reviewing your own credit file regularly.
You can obtain a copy of your credit file free from Equifax (1-800-465-7166) and Trans Union (1-800-663-9980). These free reports will not contain a credit score and it’s a good idea to get both reports. You can order more comprehensive reports including your credit score online from these companies, for a fee.
For those with bruised credit, a mortgage professional can coach you on improving your credit score over time. If you wish to get a mortgage while you work on bettering your score, they can also advise on how to get a mortgage despite bruised credit.
Sherry Jenkins is a licensed mortgage professional and founder of We Mortgage Team.