November is Financial Literacy Month! As your local Kamloops mortgage broker, I believe it is essential to provide education to help you get into home ownership and place you in a better position with your budget.
So maybe you let a few bills slide when things were tight. Or perhaps you haven’t seen a zero balance on your credit card longer than you remember. Then there was that temporary line of credit… that somehow became permanent. It’s incredible how many things we do that weaken our credit score.
Your credit score – the higher, the better – is your passport to financial opportunities. Known as a FICO score – with a possible range of 300 to 900 — your number tells lenders what kind of a risk you are likely to be as a borrower. A low credit score can prevent you from getting the lowest mortgage rate or even getting a mortgage. Sometimes, that’s how we first discover there’s a problem. The good news is that you can quickly boost your score with the right credit behaviours.
Do you know your credit score?
First, you’ll want to know what you’re working with. Get a copy of your report and see what your lender sees. Credit reports can be ordered for free through the mail, or you can download your report and your score for a small fee. More information is available at www.equifax.ca or www.transunion.ca. Check your credit report carefully for any errors. If you spot a problem, contact the agency immediately to have the issue corrected.
Do you know how you can improve?
Next, look carefully at the factors that are pulling your score down. The single most significant factor in your credit score is having a timely bill payment history; start today with a commitment to never let a bill get past due. The hardest hits on your credit score are accounts sent to collections. Even for a small amount – and even if it is in dispute – being “sent to collections” will create a serious, long-term stain on your credit reputation. Don’t let it happen.
Many people make the mistake of rushing to cancel credit cards to improve their scores—a bad idea. High balances are the problem – and your credit score is based on your balances relative to your available credit. Look at your credit card limits and calculate what 30 percent of your limit would be. Consider your upper spending limit and stay within it. The same goes for any lines of credit. Follow the 30 percent rule and stay on top of payments.
The longer your history, the better. Don’t cancel your oldest credit card – even if you no longer use it. That good history can help you. Get advice before you cancel any cards. And don’t regularly take out new credit. When you’re asked at the checkout counter: “Would you like to apply for our Store Card? You can save X dollars on your purchase today…” Don’t do it. These pitches are a potential credit pitfall. Regularly applying for credit will flag you as a potential credit risk.
Work with a mortgage professional.
Credit scores are part of the mortgage business, and since mortgages are our only business, talk to us as soon as you can. We can review your situation and let you know how lenders will view your score and what it means to your financing options. If you need to improve your score, we can outline your best options for credit improvement. If you want to get a mortgage while you improve your score, we can advise how that may be possible.