Dara Somel - Your Mortgage Expert
Improving Your Credit
It may seem like your credit bureau is not a big deal because it's out of sight, out of mind. But your credit report impacts your life in very real ways at important times in your life. Potential landlords look at your credit score when determining if you will be a good tenant who will make the rent payments on time. Car companies and retail stores will look at your credit to determine your credit worthiness when making decisions on rate and dollar amounts for your future purchases. Mortgage lenders rely very heavily on your credit history when determining how reliable a borrower you will be.
To earn a higher score and increase your access to credit, it's important that you understand what factors affect your credit rating.
Make sure all of your payments are on time every month. If you find yourself missing the odd payment, consider setting up automatic withdrawals so you know they will be paid even if you're busy and forget. Even one missed payment can affect your score, and what you don't know can and will hurt you.
Keep your balance below 75% of the maximum allowed at all times. You may max your credit card each month and pay it off, but this still will have a negative impact on your score - instead bump up the maximum allowable to ensure you never pass that 75% mark. Less balance carried is better, of course, but that 75% marks seems to be the magic number.
Length of Credit History
The golden rule with mortgage lenders is 'two trade lines for two years.' People who have no credit will find that they have great difficulty obtaining a mortgage as there is no credit history for the lender to gauge their credit worthiness with. It may seem intuitively better to not need or have credit, but in today's world this actually works against you. Work toward having two trade lines, even if from a secured credit card (I can help with this!) in the beginning, or something like a Canadian Tire card that you can use in your daily life.
Being on a spouse's credit card does not build your credit. It is common to see a spouse have no credit of their own if they have been in a relationship for a long time - this can jeopardize being able to obtain a mortgage together, and is risky for them personally should they ever find themselves outside of that relationship.
Avoid closing long-standing credit cards, even if they have zero balances. It doesn't hurt your score to have those cards, but it can negatively impact your score if you close them and lose that credit history.
Avoid applying for new credit unless you have a genuine need for a new account, particularly if you are planning on securing a major loan in the near future. Too many inquiries in a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can actually repay. Don't allow anyone to obtain a credit bureau until you are ready to proceed with the lender/inquiring party.
You can obtain a free consumer copy of your credit report from Equifax and TransUnion, which I recommend as you start thinking about a new mortgage. I am happy to help you understand your report and recommend actions to improve your score. This will also give you a chance to correct any inaccuracies showing before crunch time.