How to Build or Improve Credit for Home Financing?
Home is your one of the largest and most important financial transaction you will ever make. For Home Financing, a good credit score is most important to get best mortgage rate. We hope that following information would help you to build or improve credit so that you can enjoy mortgage savings being a First Time Home Buyer, New to Canada, Existing Home Owner or Investor.
Why Credit is Critical in Financing?
Shows your credibility to lender in managing loans and making regular payments on time
Increases your financing power to realize your dream home
Allows to state your income within reasonability for self-employed or business-for-self individual
Reduces your down payment requirement to 5% from own resources or even borrowed source (flex down)
Ability to purchase second home with low down payment
Secure best mortgage rate and enjoy mortgage savings
Make your Mortgage Tax Deductible helping you to payoff mortgage much sooner
Help your money work harder for you rather than you working hard for money to achieve Financial Freedom
What is Credit Bureau or Rating or Score?
A strong credit profile showing minimum 2 active credit lines having minimum limit of $3000 each being used consistently for over 2 years without any missed payment
Credit Score is calculated based on History of Credit Repayment (35%), Amount of Credit Utilization (30%), Length of Credit Established (15%), Inquiry for New Credit (10%) and Different Types of Credit Lines (10%)
An excellent score is 720+, good score is 680-720, average score is 620-680 and poor score is 620-
Credit repayment issues are consecutive missed payments, collection/judgement showing past due account, orderly payment of debt/consolidation order, bankruptcies
Credit utilization issues are balance approaching or exceeding credit limit, not using 2 credit lines on regular monthly basis
Length of credit issues are closing long established credit card and purchasing new credit card frequently
New Credit issues are applying for different financial need too many times and too many places at once
Types of Credit Lines are credit cards, store cards, student loan, investment loan, car loan, mortgages, line of credit, cell phone
Start building credit in Canada as soon as possible and for professional help on step by step guidance to establish credit or to improve your credit score you can contact us.
What to DO to Build or Improve Credit:
DO have 2 active credit lines individually for both you and your spouse and use it regularly every month
DO make your spouse as JOINT applicant (not co-applicant) if your spouse is not working
DO consider secured credit card if you are not able to get any credit line
DO keep each credit line current balance within 50% of global limit, lower the better
DO increase your credit card limit on existing card rather than looking for new card
DO make your credit line payment min 3 business days prior to due date even if you have to make only minimum payment.
DO setup automatic payment for your credit line either as minimum payment or full payment
DO review your credit line statement each month for previous bill payment made on time and resolve it ASAP
DO make your payment even if you are in dispute for any charges (even $1) on your credit line statement and keep record for dispute in writing
DO check your credit report every year and resolve any credit mistakes or credit fraud with Equifax & Trans Union ASAP
DO work with Professional who can use one credit pull with multiple lenders to provide best solution and mortgage rate
What NOT to do to Build or Improve Credit:
Don’t apply for store cards just for one time discount or 0% financing on huge purchases. Store cards carry much higher interest rates than major credit cards and your credit score may take a hit.
Don’t apply for new car loan if you are looking to purchase a home within 6 months. This will increase your liability and potentially may not able to qualify for desired purchase price of new home.
Don’t apply for any new loan if you got financing approval but your mortgage is not funded/closed. Financial Institution may pull new credit bureau prior to closing and if there is any increase in liability after the application being approved then it can jeopardize the approval.
Don’t close your established credit cards even if you are not using it or end up having new credit card. Closing established credit card wipes out longer length of credit history and increases the debt owed to limit ratio which drops credit score significantly.
Don't apply for too much credit (i.e. car loan, cell phone, credit card) all in same month as it lowers your credit score
Don't allow to pull your credit bureau for same financing multiple times (i.e. shopping multiple lenders) as the credit report and lender sees this as a sign of financial trouble. If there are a lot of "inquiries" within a short period of time, it doesn't look good.
With current market situation and tightening of mortgage rules by Government of Canada (OSFI), we have access to 20+ big and small banks providing you the mortgage solution and flexibility that meet your personal needs. We are Mortgage Professionals to help you plan for home ownership (i.e. purchase, pre-approvals, cash back, renewals, renovations), provide step by step guidance to prepare for mortgage financing and implement personalized savings strategies to payoff mortgage sooner. There is no cost for our expert services and to seek for professional help you can CONTACT US.
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