Here is a breakdown of common credit score terms and a few tips to help you improve your credit score before you apply for a mortgage.
Credit scores in Canada are used to measure a borrower’s credit risk based on their financial history. This includes details with credit cards, loans, mortgages, credit and payment history. The higher your credit score, the lower the interest rate will be. Having a favourable credit score is a factor in this and it also makes it easier for individuals to get credit cards and loans on favourable terms. It is wise to start working on that credit score early, so you can reap the benefits of it later.
There are three private agencies that generate credit scores – Equifax, Trans Union and Experian. all 3 bureaus offer FICO (Fair Isaac Credit Organization) credit scores using the formula developed by Fair and Isaac.
Tips on keeping your credit in check
Review your credit report at least once a year.
Contact your creditors or send letters to the credit reporting agency to have errors on your credit profile corrected.
Apply for credit only when you need it.
Keep balances below 50% on your credit cards.
Pay off non-mortgage debt on time as quickly as possible. If your debt levels are high, try to set up some sort of payment plan to reduce your balances or look to consolidate this debt.
Remember to not close accounts, even if they are not used – you can lose valuable points by doing this in the current evaluation system.
Do Inquiries hurt my credit score?
This is a common misconception, that every time you check your credit score the score will drop. Inquiries may have an impact on those with very limited credit history and on late payments.