A healthy credit score is critical. It could mean the difference between getting approved for a mortgage loan or not. For some a poor credit score can crush homeownership dreams.
It is always a good idea to regularly check up on your credit score. Our guest blogger, Reena Visani of Affinity Mortgage Solutions discusses 5 factors that impact your credit score and offers tips on improving your credit rating.
35% is for payment history (i.e. late payments, bankruptcies, collections and judgments). Lenders want to see how likely you are to pay back the credit they are about to give you, and they figure it out by looking at how/whether or not you paid back your other loans and consumer credit.
30% is for credit utilization (total amount of debt owed). A widely-regarded rule of thumb is to keep your total credit utilization across all credit products lower than 35% of the credit available to you.
15% is for the length of credit history – how long your accounts have been open and established. In general, creditors and lenders like to see that you’ve been able to properly handle credit accounts over a period of time. Credit accounts with a longer history showing responsible credit behaviour will reflect positively on credit scores. Newer accounts will lower your average account age, which may negatively impact credit scores.
10% is for diversity, a mix of different types of credit you have, such as credit cards, instalment loans, mortgages, and store accounts.
Diversity of credit shows lenders the types of credit products you have available. If you have too many different credit accounts – or don’t have a mix of different types — it could negatively impact credit scores.
10% is for new credit enquiries or credit checks. This looks at how many new accounts you have as well as how many new accounts you’ve applied for recently. Having too many new accounts may indicate to lenders and creditors that you’re taking on a lot of new debt and may be a high-risk borrower.
When we talk about credit, it is important to talk about your credit reports as well.
If you’re looking to take advantage of this fall’s incredibly low-interest rates, your credit score is going to be the difference between a so-so rate and a rate that has you bragging to your buddies.
Before you send in that loan application, boost your score with these quick tips below:
Thirty percent of your credit score is based on the amount you owe, so you want your balances to be as low as possible.
You can also send in payments twice a month to keep your running balance even lower.
Go over it carefully to check for mistakes that might be lowering your score.
The longer you have a credit account open and in use, the better it is for your score. Your credit score may be lower if you have credit accounts that are relatively new.
This blog post is written by guest blogger Reena Visani, a licensed Mortgage Agent with Affinity Mortgage Solutions, Canada’s top 2% of Dominion Lending Centres Brokerages and Madiha Khan, founder of Toronto Condo Investments and a realtor with Century 21 Atria Realty Inc.
Reena can be reached at 416.561.2454, visanireena@gmail.com, reenavisani.ca
Madiha can be reached at 647.262.2300, info@torontocondoinvestments.ca
