A Good Credit Score Pays Off
Your credit score has the biggest impact on mortgage rates lenders can give you. A lower score makes it more difficult to obtain a home financing, and you'll have to spend more on interest charges.
How Credit Bureaus Work
There are two major credit rating agencies operating in Canada: Equifax and TransUnion. They record your credit history, create a credit report and calculate a credit score.
Credit history is the information about how you managed a repaymet of each credit. It shows when you paid your dues, late or missed payments and debts you didn't pay.
Credit report includes a credit history and other records listing your personal data, current debts, credit card and bank accounts, inquires about your credit standing, collections, tax liens and bankruptcies.
Credit score (or credit rating) is a number based on the information in your credit report. It tells what risk you represent to lenders. The higher your score, the lower the risk for a lender.
The most reliable is a FICO score, used by the majority of lenders. FICO scores range from 300 to 900. A score of 600-650 will qualify you for a mortgage, 700-760 or higher will get you good rates.
When you apply for a mortgage, lenders look at your credit score. They will also review your credit report for more information to make a better lending decision.
Get Your Report And Score
TransUnion and Equifax may have collected different information on you, so you can have two different reports and scores. That's why most lenders request credit data from both agencies.
Do the same thing and review your two reports, to make sure there're no glitches in them when you apply for a mortgage.
Your other option is to access both your credit report and score on the net. Keep in mind though that such services are subscription based and you'll be charged every month unless you cancel them.
Each agency has its own brand of a score. These scores are general in nature, and can't be relied on with a blind trust. Your lender may calculate the score differently, using a formula which will work better for their specific qualifying criteria.
Nevertheless, credit scores sold to consumers still provide value. They'll tell you what credit category you belong to, and help you monitor the progress while you work on your report.
How To Correct A Credit Report
Look for mistakes in your personal information, credit card and loan accounts. Errors may show payments listed as late, whereas they have been made on time.
Your reports can also mistakenly contain records which already had to be removed. All criminal convictions older than 7 years, and credit records older than 6 years shouldn't be disclosed.
Retain all receipts and statements relating to your accounts. You may need them for proving your claim if some transaction wasn't properly reported. You can call a credit bureau or visit their website to learn how to remove errors from your credit report.
If you had a legitimate reason not to pay the debt, submit your explanations. They must be attached to the report, and lenders may take them into consideration.
Ways To Improve A Credit Score
Credit scores reflects years of past behavior. It takes time to recover from a poor credit history, and you'll have to be consistent. These few steps can move your score in the right direction:
Payment History - Always make your payments on time. Utility bills aren't recorded but they'll appear on your report after being sent to collections. Some phone and internet companies may report late payments.
Available Credit - Use no more than 35 % of your credit card limit. A high outstanding balance lowers the score, despite making payments on time.
Length Of Credit History - Credit accounts used for a long time will make your score better. Keep and use your first credit card, even if you don't need it. Each time you get a new credit, you reduce the average age of accounts.
Number Of Inquiries - Credit checks are recorded when lenders ask for your record. A single inquiry will lower your score slightly by few points (less than 5 for next 12 months), but too many of them will hurt it.
Do your shopping for a mortgage within two weeks. Multiple inquiries made in a short time are counted as one.
Types Of Credit - Apply for a small personal loan. You'll get a higher score for using at the same time both revolving (credit cards) and installment credits.
Credit Repair Services
Don't bother with credit repair companies promising they can quickly repair your poor credit history. It can only be fixed if your file contains errors, and you can do it yourself at no cost.
Negative information which is correct will be kept on your file for a period of time permitted by the credit reporting legislation.
The only way of repairing your credit score is to comply with strict credit habits and wait untill damaging records have to be removed.
How To Build A Credit History
Get a credit card as fast as you can. It's the easiest and most effective way to begin your history. Use your card frequently, pay off the monthly balance in full, and you'll build your credit profile.
Obtaing a credit card may be challenging for some consumer groups, including people who just arrived to the country and those who had credit problems in the past.
If you are one of them get a secured credit card. You'll have to make a deposit with a credit card company. Your limit will be equal to the amout of the deposit, and later on you can apply a standard credit card.