Your credit score plays a major role in determining how much a lender will allow you to borrow, the interest rate that you’ll be able to get on your mortgage, or decide whether you’ll be approved for a mortgage at all.
As a Mortgage Consultant, I see all shapes and sizes of credit reports. There are no big secrets when it comes to maintaining a good credit score, but there are a few tips I can share with you that will help to improve your score. The last thing you want is to be declined to own your own dream home, by not having an accurate and up-to-date credit score.
1) Pay your bills on time
Paying your bills consistently, on time, and avoiding late payment is the only way to keep a positive payment history and clean credit score. After a credit card, loan, cell phone bill, mortgage etc. is late for 60 days, it shows up on your credit bureau report and that delinquent payment will remain on your payment history for up to seven years. If you have trouble remembering when bills are due, consider setting up email or text payment reminders with your payees.
2) Pay at least the minimum amount on your credit card each month
In order to maintain a good credit rating, you must pay at least the minimum payment due each month. Pay more if you can afford to. 30% of your credit score is determined by how much debt you carry, particularly on credit cards. This means that failing to pay charges on your card each month is similar to putting a dent in your credit score every month. Over time, this adds up to a lot of damage.
3) Don’t close a credit card account
Even if you’re no longer using a credit card, keeping it open can help raise your score. Closed credit card accounts are included on your credit report. So closing an account may actually work against you as one-third of your score comes from your credit history so as soon as you close the old card, you cancel the history. Likewise, don’t open a number of new credit cards in an effort to increase your available credit.
4) Don’t max out your credit card or exceed your limit
If you run your credit cards to the limit, it will ruin your credit rating. Having a maxed out credit card means that you are one missed paycheque or emergency away from not being able to pay your debts. To avoid this, it’s best to try to stay under 75% of your limit.
5) Limit the number of inquiries
If you are applying for a car loan or mortgage within a time period, inquiries made to your credit bureau are considered soft inquiries and have minimal damage to your credit rating. However, if there are multiple inquiries for store cards, credit cards, lines of credits, loans etc. over a longer period, the credit bureau looks as this as “constantly seeking credit”. When working with a Mortgage Broker or Auto Loan Broker with only one credit inquiry, the broker has access to multiple lenders at once.
Before applying for a mortgage, we recommend reviewing your credit bureau report to give yourself time to correct any discrepancies you find.
