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Why your credit score is important to finding your dream home – Guest Post By Borrowell

Why your credit score is important to finding your dream home.

 

Graciously written by: Borrowell

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Imagine this: you’re on the house hunt and you’ve found the home of your dreams. But disaster strikes and it all falls apart. Why? You find out your credit score hurt your chances of landing the place you had already fallen in love with. 

Starting the house hunt on the wrong financial foot is a dream crusher. Your credit score can also impact your ability to get the best mortgage rates

Before you start your house hunt, start by checking your credit score and report first. Then, you can repair credit issues early before you face an experience where you don’t quite qualify for the mortgage you want. 

Here’s what you need to know about why your score is important for landing your dream home. Plus, we included our top tips for improving your credit score.

 

Why your credit score is important to finding your dream home

 

Credit scores are like a temperature check for lenders to determine your creditworthiness. A lender looks at both your credit score and everything that’s on your credit report, your income, and your employment. 

The better your credit score and credit history, the more likely you’ll receive a lower interest rate and be approved for a higher value mortgage. 

On the other hand, there are a few things that can contribute to having a poor credit score, such as: 

  • Maxing out your credit cards and having a high credit utilization ratio (the percentage of your available credit you’ve used)
  • Missing payments: your payment history makes up 35% of your credit score 

 

If you do these things, you may be less likely to be approved for the mortgage and rate you desire. 

Check your free credit score with Borrowell to see the best mortgage rates, personalized to your credit profile. 

 

What makes up a credit score

 

OK, so you know your credit score is important. But do you know what makes up your score? Here’s a quick breakdown.

The only credit inquiries that impact your credit score are what the industry calls “hard hits” on your credit file. These are items like applying for credit cards, mortgages or other credit products. A number of recent hard inquiries combined with other warning signals on your credit file could lead to a significant drop in your credit score.

Your credit score is not affected by checking your credit score yourself (like when you use Borrowell!) This is called a soft credit inquiry. You can breathe easier knowing that checking and monitoring your score yourself won’t impact your house hunting journey. 

 

 

 

Wondering where you stand/ how your credit score compares to others?

 

By now, you may be wondering, where do I stand credit-wise? Where do I have to be to get the best mortgage rate? 

In Canada, credit scores typically range from 300 to 900 and are determined by two major credit bureaus: Equifax and Transition. Borrowell works with Equifax to provide you with your Equifax Risk Score (ERS 2.0) – a popular and legitimate score used by many banks and lenders. 

When mortgage shopping, the higher your score, the better! 

High scores (700 points or more) generally indicate you’re less likely to default on your mortgage payments. Low scores indicate you have a history of missed payments, late payments or maybe you’ve defaulted on a loan.

Below is a breakdown of credit score ranges and what each range means when qualifying for a mortgage. 

For every 20-point increment your score drops, you’re likely to see small changes in the interest rate you’re offered. Lenders adjust the rate they offer each time your credit score moves up or down by 20 points. 

 

Top tips to improve your credit score while on the house hunt

 

If your credit score could use some love to land your dream home, there are actions you can take to get it back onto more solid ground.

Here are some of our top tips to improve your credit score:

  • Check your credit report and make sure all information is true and accurate. Read this if you need to dispute something on your credit report.
  • Pay all bills on time and in full if you can. 
  • Pay down credit card balances to below 30 percent of your limit.
  • Avoid applying for new loans, lines of credit, or credit cards. Each application is a hard inquiry and reduces your credit score. Try to avoid cancelling credit cards or lowering your limit. Doing so increases your credit utilization and may negatively impact your credit score. 
  • When your credit score has improved, rate-shop within a 30-day window. Spreading out inquiries hurts your credit score more.

If you’re ready to take the plunge into homeownership, be sure to pay your bills on time, avoid applying for new credit (aside from your mortgage), and do your rate shopping in a short time.

 

Check your free credit score with Borrowell to see the best mortgage rates, personalized to your credit profile. 

 

About Borrowell:

Borrowell helps people make great decisions about credit. With its free credit score and report monitoring, automated credit coaching tools and AI-driven financial product recommendations, Borrowell empowers consumers to improve their financial well-being and be the hero of their credit. Borrowell is one of Canada’s largest financial technology companies, with more than one million members. 

 

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