If you’re looking to purchase a condo but feel your credit score may not be ideal, you’re not alone. Many condo buyers don’t know where to begin when it comes to ensuring their credit score is appealing to lenders.
There are several good reasons to get your credit ready before applying for a mortgage, as lenders are looking for a minimum score of 660. However, a score of 690 or higher will increase your chances to qualify.
Here’s how your credit score looks to most lenders:
Once you pay attention to your credit score and how to manage it, you’ll feel empowered to make financial decisions that work best for you and your future. To help you get started, we’ve put together some tips to get your financial status on track.
This is our first tip for a good reason - you need to start by actually knowing what state your credit report is in.
In Canada, there are two major credit score institutions: TransUnion and Equifax. Both bureaus score your credit differently, so your number will vary between them. Be sure to monitor both to be aware of your overall credit situation.
TransUnion scores can be accessed for free via the Credit Karma app, or most major banks via your online banking account. Equifax can cost a small fee (depending) to access your credit score and can be done via their website. You have the option to pay per individual report you pull, or more conveniently, subscribe for a monthly fee and you can pull an unlimited number of reports.
There may be times when you end up with something on your credit report that isn’t correct. Everyone makes mistakes, even those reporting your history to credit bureaus. It is in your best interest to get into the habit of monitoring your credit regularly and report any errors you find as soon as possible.
If you find errors in your credit report, notify the appropriate institution as soon as possible so they can make it right.
This probably goes without saying, but ensuring you’re making at least your minimum payments by your monthly due date will quickly increase your credit score. Of course, your score will improve even more if you make more than the minimum payment required. If you miss even one payment, your score can be negatively affected, so be sure to pay on time
If you struggle to remember when to pay your various bills, you can set up a calendar on your mobile device or home computer that will send you notifications when a payment is due. You can also set up automatic bill payments with your bank.
It may surprise you to know that making smaller, more frequent payments throughout your pay period actually helps your credit score. Instead of waiting for your monthly due date, make smaller payments earlier, as you can. Just make sure that the total amount you’re paying is more than the minimum amount due for that month.
Making your payments this way may be easier on your budget than making lump sums all at once.
Credit is intended to be used responsibly and should never be maxed out. The closer your outstanding balance is to your available credit limit, the more your credit score dips down.
Ideally, you’ll want to utilize around 30% of your available limit to generate the best credit score. If you have multiple credit cards or lines of credit that are near their limit, use your budget to focus on paying one down at a time - ideally starting with the one that has the highest interest rate. You’ll make a bigger impact that way. Once you get one down to 30% utilization, move onto the next and maintain minimum payments on the one you’ve already paid down.
This is a common mistake home buyers make while saving to buy property. Each time you apply for credit, your score dips for a period of time and the inquiry can remain there for several years.
The more credit you apply for, the more at-risk you appear to lenders.
So, do your best to avoid applying for new credit cards, lines of credit, or any other type of loan until you’ve obtained a mortgage and closed on your condo purchase. Ideally, you’ll want to apply for credit no more than two times per year.
Lenders look at your overall credit picture in the qualification process. By leaving your unused accounts open, the unused balance counts toward your reputation as a responsible credit user. If these accounts are closed and all you have left is a couple of maxed-out or high-balance credit cards, lenders may not see the overall picture of you as a borrower. Of course, if these unused accounts have a history of late or missed payments, make sure to use your best judgement.
By staying in the know regarding your credit score and status, you’ll be empowered to make better decisions when it comes to qualifying for and choosing your mortgage product. Combining your credit score with a solid down payment will create opportunities for better lending rates, better mortgage terms, and a better foundation for homeownership.