With all the recent mortgage changes, your credit score is more important than ever. Most Lenders rely on the “Equifax” score. Equifax calculates a credit “risk” score out of a maximum score of 900. A score of 700 or higher is considered an excellent score and opens the doors to better interest rates and bank approvals. If you have used Creditkarma.ca to find out your score, you are accessing a TransUnion score which is not used by many lenders but it will give you an idea if the status of the accounts showing on your credit bureau is accurate. Let’s look at the factors that determine your credit score.
1. PAYMENT HISTORY determines about one-third of your score. Even a one-day late payment can negatively influence your score and shows on your bureau for 6 years. It’s more important to pay the minimum payment on time than to pay a larger amount late. Setting up all your accounts on pre-authorized payments for the minimum amount will ensure that you will never have a late payment.
The MOST important credit advice is to avoid having anything sent to COLLECTIONS. No lender will provide a mortgage to someone with an unpaid collection. Each one decreases your score by about 80 points. If you are having a dispute with your cell phone or internet provider, pay the bill and then argue about it later!!!
2. AMOUNT OF CREDIT USED is another large factor in determining your credit score. The more of the credit you have used, the lower your score will be. Keeping your balance under 30% of the total available amount will help your score increase. If you are in a hurry to improve your score, consider calling your credit companies for a limit increase. The secret to this trick is NOT to use the increase once it is applied!!
3. AGE OF YOUR ACCOUNTS is more important that you may be aware. Lenders will want to see at least 2 different kinds of credit established for at least 2 years for a total limit of at least $2,500. If you are considering closing any of your current credit, make sure you never close your oldest credit card. Be aware that if you close an account, your score could drop by almost 100 points!!
4. TYPE OF CREDIT you have affects your score. A combination of credit cards, loans, and lines of credit are desirable. Lines of Credit are the most difficult types of credit to acquire and usually offer the lowest interest rate, you may want to make sure you always keep one open for future emergencies.
5. NUMBER OF ENQUIRIES on your credit in the last 36 months will affect your score. Numerous calls looking for credit from different companies is a red flag for lenders and will lower your score.
How Is Your Credit Score Calculated?
Here are a few tricks to help you improve your credit:
1. Keep your balances at less than half the available credit (30% or less is perfect)
2. Call to have your limit increased (and then don’t use the new amounts available!!)
3. Set up your payments on pre-authorized payment (either full amount or minimum payment) so you will NEVER have a late payment
4. Get a copy of your credit report at least once a year and make sure it is accurate
5. Pay down your credit cards before you pay off loans
6. Make sure you have at least one revolving credit and one loan
7. Make extra credit card payments just before the statement date
8. Use your oldest credit cards consistently
9. Pay your phone, cable and utility bills on time. You can argue later!
To have a closer look at your credit situation, feel free to make an appointment or apply online at jmacdonald.ca.
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