Your Credit Score’s Role in Buying a Home
Good credit is key to buying a home. Your three-digit score provides a snapshot of your financial health. It shows how consistently you pay off your bills and debts. Lenders will look at your credit history to determine how risky it is to lend to you and ultimately whether to approve you for a mortgage.
Your credit score takes hundreds of variables into account and specifically looks at such things as how much debt you’re carrying, how many places you have applied to for credit recently and what kind of credit you have had in the past.
A good score is incredibly valuable. (The closer to 900, the better but a score of 800 or above is considered excellent.) It may change the amount of time it takes to get your financing approved. You may also get a preferred interest rate and more flexible payment terms. Generally, a score in the 600 to 700 range should satisfy the credit requirements for your mortgage application with one of Canada’s main financial institutions; however, it’s best to consult your broker or lender as there are many different credit score models used today.
It is a good idea to order a copy of your credit report from one of the major credit bureaus (Equifax, Experian or TransUnion) two to three months before applying for a mortgage to make sure there are not any mistakes or surprises. This will give you plenty of time to clear up any issues you discover. If your score is lower than you want, carefully read the report to find out which factors are most likely having a negative impact on your score. A mortgage professional can provide insight into how to improve it.
If you are planning to buy big-ticket items like a new car, furniture or appliances (paying either by cash or credit), postpone the purchase until after you move into your new home. Your credit is monitored right up to the day you close and the keys are in your hand.