CREDIT SCORES
Bad or poor credit can cost you hundreds, thousands of extra dollars in interest for any type of financing you may require and may even prevent you from getting financing at all. This is why, in addition to being timely with your creditor payments, it is also important to confirm the accuracy of your credit reports on a regular basis. This will provide you with the data contained in your credit report as well as your credit score which is used by lenders to determine how likely you are to repay a loan.
The lower your credit score, the higher risk you are to a lender and the less likely you are to get the best rates on loans. Checking your score with Equifax or Transunion before you apply for a loan can save you money if you catch a mistake or see something that you may be able to correct to improve your score. When you are buying a home, the difference between good scores and poor credit scores can translate into thousands of dollars in interest costs over the life of your mortgage.
Several factors are used to calculate your score, including bankruptcies, how many years you have established credit, how many inquiries, amount of outstanding debt, how timely your payments have been, etc.. The way lenders view scores varies from one institution to another. However, below is a guide to demonstrate how your score may be perceived by a mortgage lender:
700 and above – EXCELLENT – you will get the best rates provided other information on your application falls in line such as income, down payment, equity, etc.
680-699 – GOOD – lenders will be favorable, and you should still be able to qualify for best rates.
620-679 – AVERAGE – lenders will still consider your application and possibly at best rates. However, they will perform extra due diligence and you may be faced with a higher rate.
580-619 – SUBPRIME – You may be ineligible for any “A” type lending and be faced with higher rates and fees to arrange your mortgage. You should be looking at ways to correct issues and increase your score.
BELOW 580 – Is considered poor. At this level, you would be faced with B lending, possibly private lending or be turned down all together. You should be creating a plan to rectify past issues and then proceed with a credit improvement plan.
There are many ways to improve credit. You can take steps to improve any credit score. The first step is to make sure that your credit history is accurate. Your scores are only as good as the information reported by your creditors to the credit bureaus. The second step is to use the information on your credit history to improve your scores. You may find the biggest reason your scores are low is that the outstanding balances on your credit cards are too high compared to the total credit limits. Any credit score will improve if you pay off balances and pay on time. You may have missed some payments and have to get back on track. You may have too many inquiries on your report. You should investigate all factors and determine the best plan of action to improve your score.
Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.
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