Stop Ghosting Your Credit Score—It Notices

Your credit score influences your ability to borrow money from almost any financial institution at any time, making it a key concern for current and prospective homeowners. But how much do you know about this mystical number?

In Canada, a credit score is a 3-digit number that you build (up or down) based on your use of credit products, such as loans, credit cards and bills. It is constantly changing, so monitoring and improving it is a life-long process.

Interested in how your score is calculated? Here’s the breakdown:

• Payment history of credit cards, car loans, student debt, mortgages, department store credit, and other loans, including tracking any late or missed payments makes up 35% of your score

• Credit history is mostly about how long you’ve had credit for and a track record of how you’ve managed it, and it makes up 15% of your score

• Used credit vs available credit, which looks at revolving credit only, and includes your lines of credit and credit cards. Here it’s about a balance of having the credit vs using it, and makes up 30% of your score.

• Credit mix means a variety of types of credit being used, and makes up 10% of your score

• Credit inquiries, which are done by lenders every time you apply for credit, and make up 10% of your score

What credit score should you aim for?

When it comes to your credit score, a higher number is better. A bruised score (anything under 560) will mean you’re going to need help getting approved for credit, including a mortgage, car loan, or credit card. Getting a mortgage isn’t out of reach with the help of a mortgage broker, as we have access to alt-A near prime, alternative and private lenders with more flexible lending requirements, some that are exclusive to DLCG.

A good score would be up to 724, a very good score would be up to 759, and an excellent score would cover everything between 760-900. Higher scores mean you’ll have access to more credit and lower borrowing rates, so aiming for something over 660 is a good starting point.

When you apply for credit, a lender will perform a credit check. That check is referred to as a hard hit, and applying for a mortgage is a great example of this. It’s also another reason to use a mortgage broker when you shop for a mortgage – we only do one hard hit on your credit, compared to shopping around yourself and having each lender perform their own. A hard hit is visible on your credit report and impacts your credit score negatively. A soft hit, on the other hand, is something that doesn’t impact your credit score, like requesting your own credit report.

Myths about credit are common.Here are a few things that won’t impact your score.

• Getting married or divorced

• Using debit instead of credit when making a purchase

• Salary changes

• Seeing a credit councillor

• Requesting/monitoring your own credit report for accuracy and fraud

Speaking of monitoring your credit – this is a great way to prevent fraud. Requesting your free credit report from Equifax or TransUnion once a year and looking for inaccuracies or signs of fraud is a great start. You should also be sure to notify banks and creditors when you move.

Want to improve your credit score?Here are the basic principles:

• Pay your bills on time, every time. You don’t have to pay off the full balance of a revolving credit line, but you do need to ensure you make at least the minimum payment on credit cards, lines of credit, etc. A good figure to keep in mind is having the outstanding balance no more than 30-35%.

• Use less credit. Paying off loans, paying down revolving credit sources, and keeping balances as low as possible will reduce your debt load. Don’t apply for new credit if it’s not necessary.

• Keep old accounts. Spring cleaning isn’t going to help you here – you want to keep the accounts you have the most history on open. An old credit card or hydro account can provide a valuable credit track record.

If I messed up in the past, am I doomed forever?

No! Over time, and with better credit management, you can overcome financial missteps. The amount of time it takes will vary based on how serious the mistake was though.

If you filed for bankruptcy, you’re looking at that staying on your credit report for 7-10 years. One late payment or a few hard hits will typically take less time to recover from. Regardless, it’s going to take some time, so be patient, put in the effort, and be diligent about future money decisions.

Overall, your credit is important to pay attention to, as it can really impact your life – be it the car you drive or the home you live in. When it comes to your mortgage, I can help you get qualified no matter what your score is – that’s the beauty of using a mortgage broker.

Whether it’s a difficult qualification or negotiating the best rate for the best credit histories, I’m here to help.