Your credit score is an indicator of how you handle your credit, and lenders use this score to determine how much of a risk you are when qualifying you for a mortgage. It’s easy to get excited about purchasing your ideal condo, but if your credit score isn’t within the ideal range for lenders, there is a chance you won't qualify for the mortgage you want.
The best time to take a good look at your credit score is before you decide on a condo to buy. You may find that your credit needs work, or there are items on your credit bureau that shouldn’t be there, and they take time to get removed.
The earlier you look into your credit report and score, the more power you have to be in an ideal position when you do decide to apply for your condo mortgage.
There are two credit bureaus in Canada that hold your credit information: Equifax (the more commonly used bureau) and TransUnion. It is best to pull a report from both bureaus, as not all credit institutions report to both, so they could have different scores and possibly different items on your report.
Equifax charges a fee of $15 per report, but you can subscribe monthly for $16 and pull as many reports as you like. If you want to stay on top of your credit, it is worth subscribing so you can monitor for yourself what is being reported. This also gives you the opportunity to deal with any inaccuracies (they do happen, unfortunately) before it comes time to apply for credit of any kind.
TransUnion is easier to access and is free. You can sign up for an account at Credit Karma - they have a user-friendly mobile app as well - and monitor your credit on the go. They update your score every two weeks, and your report is available on any mobile device or online.
Both institutions keep your credit history for seven years.
Most lenders are looking for a minimum credit score of 640. Of course, the higher your score is, the better offers you will receive from lenders in terms of qualifying amount, interest rate, and products available. The highest score available is 900, the lowest is 300.
If you find your score is less than 640, you will have work to do in order to qualify for a mortgage. Lenders may not consider you a viable risk - big banks are harder to qualify with - but if they do you will likely be offered high interest rates. This could affect your mortgage payment and the total amount of interest paid throughout the amortization of your mortgage.
Your credit score is one major factor lenders use to determine your mortgage qualification. They’ll also look at your income, your debt service ratio, the amount and type of credit you hold, and your employment stability. Lenders will also include a percentage of your condo fees in your monthly expenses when determining the amount of mortgage for which you’ll qualify.
The good news is there are things you can do to improve your number. Typically, the easiest ways to improve your score are to:
If you’re really lost or feel as though you need some extra help, consider consulting a credit counsellor to determine where you can make improvements. They offer fantastic information on how you can improve your score quickly and get into better money management habits in the future.
Don’t forget that mobile phone companies, utility companies, and your cable/satellite provider also report to the credit bureaus. If you are not paying these bills on time every month, this will affect your credit score in a negative way.
Applying for credit frequently also negatively affects your credit score. Each time you apply for credit and the lender pulls a hard credit report, your score will decrease temporarily. It usually recovers within 60 days, but if you do this often, your score will continue to decline. Aim to apply for credit less than two times per year.
One last, important tip...
If you are in the pre-qualification phase of obtaining a mortgage for a condo, it’s very important you don’t apply for any further credit or change anything about your financial situation until you’ve closed on your new mortgage. If you affect your credit rating negatively in the period between pre-qualification and purchase closing, you may render your situation unqualified and you’ll lose your proposed mortgage.
By ensuring your credit is in good shape before you decide to purchase a condo, you’ll be empowered to make better decisions about the condo you buy, and you’ll qualify for more competitive interest rates and mortgage products. A solid credit history is the key to saving thousands of dollars on your new home purchase.