When applying for a mortgage, one of the factors lenders review is your credit score.  Many prospective property owners don’t pay much attention to this metric until they begin a mortgage pre-qualification discussion. However, your credit score is one of the most important aspects of a mortgage application when it comes to maximizing your purchasing power at the best possible rate.

Credit scores range from 300 to 900; the higher the number the better.  Lenders sometimes offer a greater mortgage amount relative to your income if your credit score is at least 680.

Your score is based on spending habits, repayment, and general credit behaviour including:

• Previous payment history
• Your credit usage relative to your total credit limit
• How long you have had your credit in good standing
• Frequency of seeking new credit
• Your credit mix – this is the overview of the number of each type of credit facility you have across credit cards, loans, lines of credit, etc.

Improving your credit score an be a gradual process, but is well worth it. Here are some tips to help you get started:

1. Pay Your Bills In Full and On Time: If you are unable to afford the full amount, pay at least the minimum required as shown on your monthly statement to prevent any reports of late payments, those reduce your score.
2. Pay Down Your Debts: If you are carrying balances from month to month and are wondering how to pay them down with any extra funds beyond the minimum payment due on each one, there are a few strategies you can employ to pay down debt quickly. Pay down highest interest debt first.  You might then consider paying off lower balances next, to ultimately free up extra cash flow each month to direct to paying off larger balances.  Some weigh paying off debt against the return they can earn on investments and choose to invest should the rate of return be higher than the rate of interest on debts.  A good financial planner can help you decide where to concentrate those efforts.
3. Keep Balances Within 30% of Their Limits: This is key when it comes to managing debt and maintaining a good credit score. Using all or most of your available credit will lower your score. Your goal should be to use 30% or less of your available credit. If you have a limit of $1000 on your credit card, you should keep your balance below $300.
4. Credit and Loan Application Management: Reduce the number of credit card or loan applications you submit. Multiple applications in a short period can reduce your score.

Whether you have debt or not, there are ways to manage what you owe to position your finances to your best advantage and to plan for an eventual property purchase.  If you have questions or if you’d like to start your next pre-qualification discussion early to see when you might be ready to buy or refinance property, please feel free to reach out.  Also, if you have a mortgage renewal question, or know of others who could use my assistance, I’m always happy to help.