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Buying A New Home? It’s All About Your Credit Score! (Learn How To Fix It)

Buying A New Home? It’s All About Your Credit Score! (Learn How To Fix It)

Your credit score can make all the difference when shopping for a home. Keep reading to learn how to boost yours quickly, just in time to buy!

In the market for a new home in 2022?

Well, a good credit score is essential for buying that new property.

Lenders are getting increasingly picky about who they lend to…

And a good credit score can get them on your side, get you the best interest rates, and save you thousands of dollars in mortgage payments over time.

But, it’s not always easy to achieve a good credit score.

With the new year just a few short weeks away, that leaves you with precious little time to get your finances in order.

Let’s explore a few tips that will help you get a jump on improving your credit score before the end of the year, so you can put all your energy towards finding a great property once 2022 arrives.

 

But first… what is the credit score you need to buy a house in 2022?

The good news is, you don’t need to have perfect credit to get a mortgage approved.

In Canada, a score above 640 is generally enough to satisfy credit requirements at any of the major banks.

In the US, the minimum credit score for a conventional bank loan is 620, but this minimum can change depending on the type of loan you apply for. For example:

  • Conventional Loan with 3% Down Payment: 680 min. credit score
  • FHA Loan: 580 min. credit score
  • VA Loan: 580 min. credit score
  • 203k Loan: 640 min. credit score

But these are just the minimums…

In general, a higher credit score will lower your interest rate, so a score above 760 is considered ideal for mortgage lenders.

Now, let’s dive into how you can increase your credit score to meet this goal.

 

Grab A Copy (or Copies) of Your Credit Report

First things first, you can’t know how to improve if you don’t know your current credit score.

So order a fresh copy of your credit report from one of the major agencies, or even multiple reports to compare the results. (You’d be surprised, they don’t always match!)

In the US, The Fair Credit Reporting Act allows you to access a free copy of your credit report once every 12 months. So, if you have not ordered a copy recently, it is time to do so.

You can access this free service through AnnualCreditReport.com, which is a website recommended by the Federal Trade Commission.

In Canada, Equifax recently made it free to access your credit information online! And other credit providers will charge a $30 fee to get a copy.

 

Made Sure the Credit Report is Accurate

Once you have your report, you want to make sure that its details accurately reflect your current financial situation.

You should recognize every current and outstanding account in the report. Any balances owing should be in order and reflect how much you really owe.

If you come across anything that shouldn’t be on your credit report, call the reporting agency to let them know.

You may be able to dispute any inaccuracies and get them fixed within 30 days…but make sure you do it quickly!

This is especially important for mortgage lenders, as they will refer to this information for your application. If something is amiss, they may have to decline your application.

 

Increase Your Credit Limit (But Only if You Won’t Use It)

Your credit limit is a very important factor in calculating your credit score.

In fact, it might make the difference between a good and bad score.

The general rule of thumb is to keep your monthly credit card balance under 30% of your available credit limit…and never above 50%.

For example, if you have a credit card with a $5,000 limit, your monthly balance should try not to exceed $1,500. If you can keep it at or below this amount each month then you will see your credit score rise!

However, if you find that every month your balance exceeds 50% of your limit ($2,250 in the example above) then you’re going to see your score drop.

The reason for this is that, when you use a large percentage of available credit each month, it gives the impression that you are overspending and will make it difficult to pay off your balance quickly.

The best way to avoid this problem is if you don’t use up your limit.

You can achieve this by:

  • reducing your spending,
  • using another form of payment, like cash or check, when you approach this limit each month, or
  • increasing your credit limit so your current spending falls below 30%

But don’t let yourself get carried away…because if increasing your credit card limit will also cause you to increase your spending, it’s definitely not worth it!  

 

Pay Down Those High-Interest Debts (like your Credit Card)

Today’s final tip is to prioritize your outstanding debts so that you can pay them off more efficiently.

The essential debt payments are your mandatory minimums, which you need to pay to avoid being reported for un-payment and have your credit score significantly reduced.

From there, try to pay off your debts with the highest interest rates first.

Getting these paid off faster means that over time, you’re spending less on interest payments. Moreover, you can use that extra cash to pay your other debts faster in the future.

On top of your credit score, banks want to make sure you have no significant debt payments before lending you money, so paying off this high-interest debt will also help you become a more mortgage-worthy candidate.

 

The above are just a few of the action steps that you can take today to start improving your credit score by 2022.

When you’re ready to start looking for your dream home, view the recent property listings in your area on aqrehome.com/property/, and contact our excellent mortgage broker team at aqrelending.ca to find a loan that suits your home!

We will be happy to advise you on your home purchase, and the mortgage offer that suits your needs, budget, and credit.

Happy home shopping!

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