Let’s face it – life is BUSY – school, kids, work, sports, social engagements, Facebooking, Pinteresting… there are so many ways a person can get lost in their day to day life that they may forget to make the payment on their credit card for the month or forgot to pay their cell phone bill or whoever the creditor may be that floated you some cash for 30-60 days. Being a few days late in instances like this isn’t the end of the world, but it is if you do it consistently or of you do not make a payment at all for the month.
Your credit will play a very important role in the real estate buying process, that is, of course, assuming you have some; but we will talk about that at the end of this blog. Firstly, your credit score will determine if you are able to purchase a home and to some, an equally as important part is that your credit will also determine your buying power or how much you can spend on a home it will also determine your interest rate at some lenders. So as you see, it is very important to maintain a healthy and happy credit score and I would like to give you some pointers to help!
- I think it is important to understand what your credit score actually is. If you ask The Google it tells you that a credit score is: a three digit number calculated from your data-rich credit report and is one factor used by lenders to determine your creditworthiness for a mortgage, loan or credit Which, in layman’s terms means: it is a report card for how you frequently you spend and repay borrowed money.
- Get a report on your credit semi-annually for your review, with this information you have full control of your destiny. It is also a means to monitor your credit against theft or credit fraud. More often than not, you will see discrepancies, which you may have thought, were cleared up but are still there dragging your score down. Equifax Canada allows you to make inquiries on your credit without affecting your credit score.
- Never miss a payment; missing payments has the most negative effect on your credit score. Some banks give you the ability to set up your account to make auto minimum payments on your credit card. If you are lucky enough to have this service, I highly suggest that you use it!
- Don’t close your unused credit cards. If it has a super high limit, just reduce it and use it often enough to keep reporting your credit. It takes years to establish good credit and having a long history with one provider is actually better, so keep it active rather than cut it up. (Even I learned something new today)
- Never max out your credit cards! Try and keep it below 30% of the limit and never exceed the limit.
Circling back to the top of the blog, I wanted to touch on the thought of having no credit. More often in my experience than not, this happens to people that have just moved to Canada from pretty much anywhere in the world. If you are new to Canada, you will need to establish new credit. Sometimes a lender can use alternate credit such as utility bills but more often than not they need hard credit. The best way to establish solid credit is to have 2 sources of credit in only your own name for a no less than 2 years with a minimum of $2500.00 credit limit.
Every mortgage broker I have met in my day would love to sit with anyone to discuss repairing credit and most of them will help you budget your monthly payments and help you eliminate what you need to in order to make that credit score as strong as possible.