These days, we’re seeing more and more lender tightening with mortgages and other lending, especially if you’re not in what they consider the safe, vanilla, financial “box”. You can’t control the lenders, but what you can control is your credit score. It will help you to maximize your options, despite the lender restrictions.
A Few Examples where you might not be in the Box
Here are a few scenarios I’ve seen recently where we have had challenges in getting financing, but good credit saved the day.
- you’re self employed
- you’ve had credit issues in the past
- you’re looking to re-finance your home, have tons of equity, but your income’s too low to qualify in a traditional way
- you want to do a fix and flip
About your Credit Rating
With a possible range of 300 to 900, your credit rating number tells lenders what kind of a risk you are likely to be as a borrower. The lower your score – according to the stats – the more likely you are to miss payments or default on your debt. In a mortgage scenario, a low credit score can prevent you from getting the lowest mortgage rate, or even from getting a mortgage at all.
7 Tips to Boost your Credit Score
1. Know what you’re working with.
Get a copy of your report at least once a year. Credit reports can be ordered for free through the mail or, for a small fee, downloaded from www.equifax.ca or www.transunion.ca.
2. Get errors cleaned up right away.
I’ve often reviewed credit reports with people, only to have them say, “Oh, that was paid off years ago, why is it still there?” or “What the heck, I never had a bill go to collection for xyz creditor.” You can argue mistakes and errors with both Equifax and TransUnion. It’s a pain, but it’s more of a pain if you’re under the gun trying to get a mortgage within tight time frames, and you’re surprised with something on your credit bureau.
3. Pay on time, all the time.
The single biggest factor – around 35% – in your credit score is having a timely bill payment history. Start today with a commitment to never let a bill get past due. Make your life simple: take a Saturday morning and set up every single bill to come out automatically on the due date. Some people have found they can trigger a jump in their score by paying the minimum payment on the due date, and an extra payment two weeks earlier, so you end up making two payments each month rather than one. I haven’t seen this first-hand, but you could certainly try it. Just don’t underpay!
4. Know your limits.
Your credit score is based on your how much of your available credit you’re using. Look at your credit limits and try not to use more than 30% of the available amount on each card or credit line.
5. A longer history is better.
This is one of the biggest mistakes I see. Don’t cancel your oldest credit card!! In fact, get advice before you cancel any cards. A long steady history of using cards responsibly demonstrates trustworthiness. You want to shoot for AT LEAST 24 MONTHS of history on each credit facility. If you add a new card, don’t cancel the old ones until you’ve been using the new one for two years. Use the old ones once a month for gasoline or some small item to keep them active (and pay them off in full each month).
6. Be selective.
When you’re asked, “Would you like to apply for our Store Card to save $X dollars on your purchase?” Don’t do it. These pitches can be a credit pitfall. Regularly looking for more credit will flag you as a potential credit risk and drag down your score.
7. Keep it balanced.
Creditors like to see that you can handle a wide variety of credit types. For example, if it makes sense in your budget, a nice mix of credit would be a couple of major credit cards and a car loan or lease. But don’t do this unless you can afford it, and make sure it doesn’t interfere with a major purchase such as buying a home.
Want to know more?
Check out my other articles about credit, here.
And if you have weird credit bureau stories or helpful tips, please share them!