Here’s a scenario you don’t want to be in: you’ve shopped around and found the perfect house that checks off all the boxes. But your mortgage rate is high because you’ve neglected to pay attention to your credit score in the months leading up to your big purchase.
Sounds like a bad dream, doesn’t it? This is why your credit score matters when shopping for a home. Here’s how to improve your credit score before and during the house hunt to ensure the best possible mortgage rates.
1 – Make all of your household payments on time
Paying your bills on time, every time, is one of the best things you can do to improve your credit score before and while you’re on the house hunt. Making payments on time demonstrates to potential lenders that you’re financially responsible.
Delinquent accounts can have a negative impact on your credit score. If you do have past due payments – you should try to pay off the oldest ones first.
2 – Pay off your credit cards – or else!
Along the same lines, it’s incredibly important that you pay off your credit card balance each month. If you fall behind on your credit card payments, you’ll be charged interest – which is not what you want when you’re already about to drop a large sum of money on your downpayment.
If these accounts become delinquent, it can have a negative impact on your credit score.
3 – Keep an eye on your credit utilization
Your credit utilization is the amount of credit you’ve used out of the total amount of credit that’s available to you. The lower your credit utilization, the better!
Here’s how to find your credit utilization ratio: divide your total credit card balances by your credit card limits. For your total credit utilization, simply add up all your cards and lines of credit and divide them by your total credit limit.
For example, let’s say the balance of your credit card is $500 and your limit is $1,000. Your credit utilization for that card would be 50%. Banks and lenders like to see your utilization rate below 30%.
So, while you’re shopping the housing market – be careful not to make any big purchases, because your credit utilization may also affect your credit score.
4 – Raise your credit limit
You might think that asking your bank to raise your credit limit is a bad idea. But doing so can actually decrease your credit utilization ratio! If you feel that you’re in control when it comes to your credit card spending, raising your limit might be a good idea.
5 – Be cautious when seeking new credit
When you apply for new credit, such as a credit card or a mortgage, the lender will make an inquiry about your credit to determine your creditworthiness (how likely you are to pay them back). This is a hard inquiry that will slightly negatively affect your credit score. Borrowell, on the other hand, is a soft inquiry that doesn’t affect your credit score.
If you’re on the house hunt, be careful not to apply for new credit, unless it’s a mortgage of course. If you’re shopping around for rates and have a lot of mortgage inquiries, the credit bureau will most likely count these as one inquiry if they are done in a short period.
Borrowell helps Canadians make great decisions about credit. With its free credit score and report monitoring, personal loans, and product recommendations, Borrowell empowers Canadians to improve their financial well-being and be the hero of their credit! Join the over 700,000 members who have checked their credit score for free with Borrowell.