Buying a Home? Check Your Credit Score

You may be considering the option of buying a home. Homeownership can have a host of benefits, allowing Canadian residents to customize their property to meet their lifestyle needs and begin building equity in their own homes. Many Canadians have made the switch to becoming homeowners. And though some people can pay for their home entirely in cash, others cannot. A mortgage may be necessary for those who cannot pay for a home in cash. A mortgage is a loan to buy a home where the house becomes the collateral for the loan.

There are several requirements for obtaining a mortgage. A key requirement is a credit score. Applicants will need to prepare to apply for a home mortgage loan. One main factor in applying for a mortgage is the applicant's credit score. A borrower's credit score serves as a reflection of a potential borrower's ability to make timely payments on a home loan.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

What Is a Credit Score?

A credit score is an important reflection of a mortgage loan applicant's credit history. Typically, applicants with higher credit scores are more easily approved for a home mortgage loan, as long as other requirements are also met. A higher credit score also may mean better terms, such as a lower interest rate, for an approved borrower. A lower loan interest rate allows a borrower to pay less in interest cost over the lifetime of the loan. A borrower with a good or excellent credit score may also qualify for instant approval on a home mortgage loan from a particular lender, making it easier to begin searching for a home.

Where Can You Get Your Credit Score?

Potential home buyers may not know their credit score and not be aware of which agencies to reach out to for their credit score and credit history. The three agencies to contact are Experian, Trans Union and Equifax. A FICO score may be a term used instead of "credit score" with these agencies. Request a credit report to learn more about one's credit score and history and to begin making any necessary improvements.

Be Sure to Check Your Credit Report Regularly

For most, the thought of checking a credit report is not of importance because they know they have paid all of their bills on time. However, it is essential to regularly check a credit report for many reasons. The main reason is to check for errors on the credit report. These errors could come from a payment misplacement by the creditor or incorrect information. Regularly checking a credit report allows these mistakes to be identified and disputed for quick correction. 

To avoid these mistakes, check all three credit reports — Equifax, Experian, and TransUnion — at least once a year. If there have been problems, it may be necessary to check the reports more often. 

What About Credit History?

Lenders are interested in the details of a potential borrower's financial past. A credit report will show payments on auto loans and credit cards, late payments, and previous bankruptcies. A lender is looking to work with a borrower who can demonstrate a history of consistent payments on debts. Lenders review the amount of debt and length of credit history to assist them in making a determination about whether to move forward with a mortgage for the borrower.

What About a Low Credit Score?

A mortgage applicant with a low credit score can obtain a mortgage in some instances. Defaulting on a previous loan or making late payments will lower one's credit score, which will make them less likely to be approved for a home mortgage loan. However, this does not mean that those with a poor credit score cannot get a home mortgage loan. Since there are other factors involved in the mortgage process, a low credit score may not preclude getting a mortgage. In these cases, it's best to speak to a financial or mortgage professional.

How Can You Begin to Improve Your Credit Score?

If you are thinking of buying a home, it can pay off to find out your credit score. If the score is low or needs improvement, then an investment of time and effort may be required to investigate how to improve one's credit score.

It's generally recommended that those with a high level of debt should consider paying down the debt. They should then continue to make on-time payments on any remaining credit card balances and other smaller loans. In the meantime, one should avoid applying for additional lines of credit or closing a credit card. These actions may negatively affect one's credit score.

Buying a home is one of the biggest steps anyone can take. And one of the first steps in buying a home is knowing the details of one's credit and credit score. In addition to the assistance of a qualified real estate agent, the services of a mortgage broker or lender are very important as well. A mortgage lender can help a potential applicant learn more about their credit score and the mortgage process to eventually be approved for a home loan.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.