Buying a house is a significant financial investment. It has been your lifelong dream to have your own house. However, purchasing a home can be a complex process involving many factors - budget being the most crucial. You can benefit from the professional and knowledgeable assistance of Mike Bolger, the best real estate agent in Waterloo and the KW Area. This article will guide you on all about credit scores why a good credit score is essential, how you can improve your credit score and more.
What is a Good Credit Score?
Generally speaking, credit scores in Canada range from below average (around 300) to excellent (around 900). It is considered that anything above 660 is considered good credit, which indicates that your risk of defaulting on your mortgage is low. Hence, you are likely to be approved for a mortgage.
The minimum credit score to get approved for a traditional mortgage varies by lender and type of mortgage. Some lenders might accept a little lower score, but still, generally, a higher one is considered better. When applying for a mortgage, it is considered ideal to have a credit score above 700. Still, in general, it's around 680.
The Following Factors Can Impact Your Credit Score
The following factors can affect your credit score:
The most significant factor that affects your credit score is your payment history. You can significantly lower your credit score if you make late payments, miss payments, or default on loans or credit accounts.
Length of credit history
Having credit accounts for a long time is another critical factor that influences your credit score. The credit score of an individual with a longer credit history will typically be higher.
A credit utilization ratio measures how much credit you are using compared to what you have available. A high credit utilization rate can negatively affect your credit score.
Types of credit accounts
Your credit score can be positively impacted by maintaining a balanced mix of credit accounts, such as credit cards, loans, and mortgages.
New credit accounts
If you open several new credit accounts within a short period, it will create a negative impact on your credit score.
Does a Credit Score Play a Role in Mortgage Approval?
A mortgage is an excellent option for those who do not have the funds to purchase a home outright. It helps you finance the purchase of a home by allowing the payments to be made over a period of time. A good credit score will increase your chances of getting a mortgage approval and a favourable interest rate. The higher your credit score, the better your chances of getting a mortgage.
Credit score impacts your mortgage application negatively and positively. A high credit score will benefit you, while having a low credit score or no credit history will be a disadvantage. If you timely make payments and have a low debt load, it improves your credit score. Moreover, your risk of defaulting on your mortgage loan is determined by your credit score.
Debt and late payments will lower your score and make you appear a high-risk borrower. Banks are reluctant to lend large amounts of money to someone who may be unable to repay it. If they do, they will likely charge a much higher interest rate because of the increased risk involved. Mortgage payments will be higher, and costs will be higher over time due to higher interest rates. Consequently, higher interest rates will cause an increase in mortgage payments, and costs will be higher over time.
How to Improve Your Credit Score?
If you want to buy a house, track your credit score frequently and take steps to improve it. The simplest way to improve your credit score is to build a credit history by obtaining a credit card and making all your payments on time. Furthermore, you can do the following to increase your credit score:
Maintain a Timely Payment Schedule
It can negatively affect your credit score if you make late payments. You can improve your credit score by paying your bills on time, including credit card bills, utility bills, and loan payments.
Use Your Credit Less Often
You can measure credit utilization by comparing the amount of credit you use to your total credit limit. Your credit utilization should not exceed 30% of your credit limit. You may experience a negative impact on your credit score if your credit utilization is high.
Have a Mix of Credit Types
You can demonstrate your ability to manage different types of debt responsibly by having a mix of credit types, such as credit cards and mortgages. Over time, this will improve your credit score.
Do Not Close Old Accounts
By closing old credit accounts, you can reduce your overall available credit and increase your credit utilization ratio. Furthermore, it is possible to improve your credit score by keeping old accounts open, which can help you maintain a longer credit history.
Work With Mike Bolger
When searching for a home, the competition for the best homes can be intense. Mike Bolger will use his knowledge and experience to find you the perfect house in Waterloo and the surrounding areas. You will also receive the best insight into the community, market, and area.