Understand Your Credit Score

What is the number one reason that I see people unable to purchase their first home?

They don’t understand the impact of a credit report.

Don’t be a credit fool.  Your credit score matters.  A LOT.   You can check it for free, using Equifax: Check that out HERE.

Lenders use your credit score (also known as your “Beacon score”) to evaluate your ability to repay a loan.  If you consistently fail to pay your cell phone, or vehicle lease payments on time, a lender is unlikely to trust that you will pay your mortgage on time.  Also, if a lender sees that you’re seeking credit from different institutions every month, they are going to worry that you’re a “credit maniac,” and feel uneasy about doing business with you.

Here are a few key tips to keep your credit score in check:

Pay your cell phone bill.  I mean really – always pay your cell phone bill.  On time.  Every time.

2-2-2 Rule. You want at lease 2 items, (credit cards, lines of credit, car payments, RRSP loan, etc) with 2 years’ history, with limits of at least $2000

Keep old credit cards active. The longer you’ve had an account open (without any trouble), the less likely you are to default on it.  It’s important to use the card at least every 6 months and to pay at least the minimum payment on time, every month.

Don’t max out your limits. Keep balances below 65-75% of the maximum credit limit

Pay your bills on time. Make at least the minimum payment on time – every time.  Any late payment on your credit report negatively affects your score. Remember that online banking payments can take up to three days to process, so don’t wait until the last minute!

Don’t apply for credit you don’t need. Resist the urge to get the free t-shirt, blanket, etc., at the hockey or hockey game. (You know those people standing at the booth, offering free swag if you “apply now”) Too many inquiries over a short time can reduce your credit score.

Keep your credit score above 680. This number allows you the most flexibility when applying for a mortgage.

Bonus:  Monitoring your credit score not only helps keep your own spending in check – it can help to prevent or catch identity theft and fraud.  Everyone should be monitoring their credit on a regular basis.