When getting approved for a mortgage, there are a few things you should come prepared with. There’s having a down payment saved, having your ID and employment history at the ready, but there is another major part of your application — Your credit score. A credit score is a number that is designed to represent your credit history and your credit risk. When applying for a mortgage loan, lenders will look at your credit score which in the end will help them decide if you are a ‘risk’ to loan money to or not.

There are a few ways you can check your credit score – in fact, most mobile banking apps have a feature that can show you your credit score. If you have recently visited a lender or a mortgage broker and have been told your credit score is too low to be approved, hope is not lost. There are many ways you can improve your credit score and thereby increase your chances of getting approved for a mortgage.

How is a credit score calculated?

Before we dig into how to improve your credit score, it’s good to know how credit scores are evaluated. Let’s break things down:

• Payment history: Payment history makes up roughly 35% of your credit score. As the name suggests, this is how you’ve been making payments towards your credit, loans, and bills. Are they on time? Are you only making minimum payments? Have you ever missed payments? Many Canadians believe this is the only factor that makes up your credit score. While it is a big part of it, it’s not the only contributing factor to your score.
• Outstanding debt: Also known as credit utilization, this is the amount of debt that you owe. This also makes up about 30% of your credit score. Ideally, it’s best to keep your credit at 0, or at least far lower than what your credit limit is. Let’s say your credit card has a limit of $2,000. If you consistently have your balance around $1,800, that isn’t good for your score – even if you are making the minimum monthly payments.
• Credit history: Separate from payment history, credit history is the length of time you’ve had credit. Making up about 15% of your score, the longer you’ve had credit, the better it is for your score.
• New credit: When you apply for different types of credit, this is called new credit. It makes up about 10% of your score. If you apply for too many different types of credit in a given year, it can impact your credit score.
• Credit mix: Making up 10% of your score, credit mix is the variety of different credit you have. This shows lenders how you can balance having different types of credit. It’s a good thing to have a credit mix (credit cards, line of credit, car loan, etc.) and your score may be lower if you only have one type of credit.

How can you improve your credit score to secure a mortgage?

• Review your payment history: Your payment history being the most influential factor of your credit score should be your first focus. If you have a history of missing payments, you will start to see your score improve if you start making those payments on time. Even if you can make the minimum payments on your credit, it will help increase your score.
• Use your credit wisely: Keeping credit utilization in mind, be careful with how you’re using your credit. Try to keep your credit low and avoid hitting your limit. If you are someone who uses their credit a lot, lenders may see you as someone who depends on credit to survive. Therefore, you’re labeled as a risk to loan money to.
• Length of your credit history: The longer you’ve had a credit account open, the better it is for your score. If you opened a credit account when you were younger, that’s great. But let’s say you decide to transfer an old account to a new account. That new account is going to be considered new credit. So, it may be worth considering keeping the older account open, even if you don’t use it as frequently.
• Avoid applying for too many types of credit: It’s expected that from time to time, you will need to open different types of credit. That’s OK. However, applying for a bunch of different types of credit at one time can hurt your score.
• Use different types of credit: Having different types of credit is good for your score (credit card, car loan, line of credit, etc.). Just be sure to make payments on time to avoid having too much debt – which can end up hurting your score in the long run.

A good credit score takes more than just making your minimum payments. There needs to be a good balance for your score to hit that ‘Excellent’ rating on the graph which we want to see when applying for a mortgage. If you’re looking to improve your score to get approved for a mortgage, I can help. As a professional mortgage broker and a financial advisor, I can not only show you how to get approved for a mortgage, but I can also show you how to improve your score specifically. To get started, schedule a virtual consultation with me today! Visit my website to start your mortgage application or give me a call directly at 705-315-0516. A credit score is a lot easier to repair than you make think, so let’s get started today so you can start your home buying journey ASAP.