Your credit is an important indicator of how well you are doing financially, which in turn tells the lender of how much risk you pose as a client. The less risk you pose to the lender, the better your chances are of receiving the best mortgage rate. After consulting some of my clients on the best strategies, a number followed my advice, and experienced a positive change to their credit rating, and subsequently their mortgage rate. In this post, I would like to outline some of the general best practices to keep your credit in good standing.
Frequent loan applications are bad for your credit score
Credit bureau will drop your score if they see frequent loan applications, as it signals to them that you are credit seeking. This triggers alarms because by accumulating more debt, the client may be heading towards bankruptcy. The trick of the trade is to never go over 3 hard inquiries during the course of 6 months. At this ratio your actions would not significantly affect Equifax calculations.
Another word of advice is to refrain from taking out any sort of credit before closing your mortgage. Because, amongst other factors, the lender qualifies clients based the number of credit products, the changes to your credit file could result in a last second denial of your mortgage.
Do not close off your old accounts
Whether it is a credit card or a line of credit – the older your credit is, the better it is for your credit rating. The idea is, even if after a hard struggle you finally paid off your credit card in full and you do not want to get into debt again – do not rush to close the account off. If you must, grab a pair of scissors and cut it into little pieces, but leave it open and make sure that you switch to a no-annual fee product. That way you will keep your available credit, which will help keep your credit score healthy.
Check your credit score
The first thing that any lender will do is check your credit score, as it will immediately indicate to them your financial standing with creditors and your bill payment patterns. Therefore, you want to make sure that your “score card” is perfect and there are no errors or fraudulent claims or accounts that could negatively affect it. To do this, review you credit every few months by login on to ww.equifax.ca, or sign up for their credit watch product which would automatically send you a report every 3 months as well inform you automatically if there is new any activity on your file. Should you find an error on your credit report, rectify it as soon as possible by online reporting, mail, or contacting the creditor directly.
Meet bill deadlines
A mortgage payment is just like any other monthly bill, and it is of utmost importance to lenders whether you are able to pay your bills on time. Therefore, a proven step to securing a good rate is to get in the habit of paying outstanding monthly expenses by specified due dates. It is an even a better habit to pay your balance in full, as it will demonstrate to lenders that you are not keen on accumulating debt. Your credit report weighs out how much credit has been extended to you against how much of it you have used up. For example, your credit score will suffer if you have a credit card with an available credit of $20,000, which has a balance of $15,000. While you may not be financially capable of paying off the full $15,000 right away, try reducing it to 1/3 and see what a difference it will make on your score!
