What is Credit Score?
It's a 3-digits number from 300 to 900 which is very important for obtaining a good mortgage - it tells lenders what kind of a risk you are likely to be as a borrower.
Credit Score can be found in Credit Report - the document that presents the information that a credit bureau has compiled on the individual. Credit Report also contains all the information, used to calculate Credit Score (that is kept on an individual's file for a certain period of time - the Credit History).
How to interpret Credit Score:
760-900 - Excellent (57% of Canadians are in that range)
725-759 - Very Good (14%)
660-724 - Good (15%)
560-659 - Fair (10%)
300-559 - Poor (4%)
Items that affect a Credit Score. Ways to boost it.
Your credit score is essentially your passport to financial opportunities. A low credit score can prevent you from getting the lowest mortgage rate, or even from getting a mortgage at all. That's why it's important to know the credit behaviors that can keep your score high, or give it a boost!
Forewarned is forearmed. Know what you're working with!
Get a copy of your report (the instructions are in the section "How to pull Credit Report?" below) and see what your lender sees. But even if you don't do that, nothing prevents you from following the advice, listed below, starting from today.
Payment History. On time, all the time!
The single biggest factor in your credit score is having a timely bill payment history. Missing or late payments will have a very negative effect on a credit score! It is important to ensure that all payments are made on or before their due dates, and in the correct amount. Any judgments, bankruptcies, collections and other public records are considered quite serious and have a significant detrimental impact on a credit score. Start today with a commitment to never let a bill get past due!
Amounts owed. Know your limits!
Your credit score is based on your balances relative to your available credit. Look at your credit limits and try not to use more than 30% (maximum - 50%) of the available amount. Balances over this amount may lower a credit score. Having several accounts with high balances in relation to the available credit may indicate that you are relying heavily on credit to meet your daily living needs.
Length of trade line. A longer history is better!
The longer a trade line (credit card, line of credit etc.) has been established, the higher the credit score. Therefore if you are considering closing a credit account, don’t cancel your oldest one - you should consider closing the most recently opened account. A long steady history of using a credit card or line of credit responsibly demonstrates trustworthiness.
New credit and inquiries. Be selective!
When you're asked "would you like to apply for our Store Card to save $X dollars on your purchase?", don’t do it. These pitches can be a credit pitfall: each time you apply for a credit card, the credit company pulls your credit report, and multiple inquiries can lower a credit score. Regularly looking for more credit will flag you as a potential credit risk. The program can determine that you are a credit seeker.
However, if you are seeking mortgage or auto financing, the program allows for a thirty-day buffer. For example, if you apply for a mortgage on November 30th, and the credit report shows three previous inquiries in November, the program will ignore those three inquiries since they took place within the thirty-day buffer zone.
However, multiple applications for other types of credit such as personal loans and credit cards will lower your credit score. The program also takes into account the length of time since the last new account was opened.
Types of credit. Keep it balanced!
Creditors like to see that you can handle a wide variety of credit types. The best mix of credit is a combination of a store credit card and a major credit card such as a Visa or MasterCard. It is important not to have too many, however, as the number of trades on a file can negatively impact a credit score.
Number of trades on file. Your wallet should not swell up from credit cards!
Too many credit cards and loans may also lower your credit score. By having only a few trade lines, your credit score may be improved.
Credit inactivity. Pay with credit cards!
Active using credit responsibly is one of the fastest ways to increase a credit score. Unfortunately, those who only use debit card or cash to make purchases, can have a lower credit score than those who regularly swipe credit cards.
How to pull Credit Report?
In Canada, there are two credit reporting agencies where you can obtain your credit report (to "pull" it, as we say): Equifax and Transunion, with Equifax holding the majority of the market share (so, we usually use Equifax).
You have a few ways to get the report:
Once you are interested in obtaining a mortgage, then you most likely will also be interested in the help of an experienced real estate agent: