As a first-time home buyer, your credit score plays a crucial role in determining the mortgage rates and terms you’ll be offered. A higher credit score can lead to significant savings over the life of your loan. As a first-time buyer, I know how overwhelming securing a mortgage can be and I’m here to simplify everything for you. Your first step to take is to increase your credit score as much as possible before applying for the mortgage you want. How do you do that? Let’s explore some practical steps you can take to improve your credit score and increase your chances of securing a lower interest rate for your first mortgage.
First, You Need To Understand Your Credit Score
Before diving into improvement strategies, it’s important to know where you stand. Request your free credit report from the major credit bureaus in Canada (Equifax or TransUnion) and review it carefully. Your credit score is typically based on factors like payment history, credit use, length of credit history, types of credit accounts, and recent credit inquiries.
Pay Your Bills On Time, Every Time
Payment history is the most significant factor in calculating your credit score. Set up automatic payments or reminders to ensure you never miss a due date. Even a single late payment can negatively impact your score.
Reduce Your Credit Use Ratio
Try to keep your credit card balances below 30% of your credit limit. If possible, aim for an even lower amount. And, remember that paying down existing balances can quickly boost your score.
Don’t Close Old Credit Accounts
The length of your credit history matters. Keeping older accounts open, even if you’re not using them regularly, can positively impact your score. Just make sure to use them occasionally to keep them active.
Limit New Credit Applications
Each time you apply for credit, it results in a hard inquiry on your credit report which can temporarily lower your score. Avoid opening new credit accounts in the months leading up to your mortgage application.
Dispute Any Errors on Your Credit Report
Carefully review your credit report for any inaccuracies. If you find errors, dispute them with the credit bureaus. Removing incorrect negative information can give your score a significant boost.
Consider a Secured Credit Card
If you’re struggling to build credit, a secured credit card can help. These cards require a cash deposit and can be an excellent tool for establishing a positive payment history.
Pay Down Existing Debt
Focus on paying down your existing debts, especially high-interest credit card balances. This will improve your debt-to-income ratio, which is another factor lenders consider when evaluating mortgage applications.
Become an Authorized User
If you have a family member or close friend with excellent credit, ask if they’d be willing to add you as an authorized user on their credit card. Their positive payment history could boost your score.
Work with a Financial Advisor To Improve Your Credit Score
Navigating the world of credit and mortgages can be complex. Consider working with a financial advisor who can provide personalized guidance based on your specific situation. They can help you create a tailored plan to improve your credit score to better prepare you for homeownership.
Need Help Building Your Credit Score To Secure Your First Mortgage? I Can Help!
Improving your credit score takes time and consistency. Start implementing these strategies as early as possible in your home-buying journey and you’ll start to see your score climb. Even small improvements in your credit score can lead to better mortgage terms and potentially save you thousands of dollars over the lifespan of your mortgage loan.
I can offer you professional financial advice AND, as an accredited mortgage broker, help you find the perfect mortgage suited to you and your family. Even if your credit isn’t perfect, I will help you find a mortgage solution for your first home. Call me today at 705-315-0516, or book a consultation online. Together we can make your home ownership dreams a reality.