When shopping around for the perfect home, buyers also need to have their mortgage in mind to help them create a budget. Your mortgage is essential to your house hunting process and there are a few considerations home buyers need to keep in mind. First Time Home Buyers experts will always advise clients to create a solid budget before they start the home buying process. Credit scores in Canada and the United States slightly differs in terms of their range and what the scores represent. Here is the breakdown of score and meaning:
Canada Credit Score Rating – Maximum is 900
Excellent (Scores 780+)
Any score above 780 is considered an excellent score, leading to borrowers receiving better interest rates.
Very Good (Scores 779-720)
Scores between 720-779 is considered almost perfect and borrowers can still receive better rates.
Good (Scores 719-680)
Falling within this range still provides little to no trouble in obtaining approval for a mortgage.
Average (Scores 679-620)
This range is still considered to be in good standing,, however, borrowers may receive slightly higher rates.
Very Poor (Scores 579- 500)
Those who fall in this category will need to modify their score in order to receive a mortgage.
Terrible (less than 500)
Any individual with a score below 500 will need to vigorously work on their credit score to repair their standing, and seek help to accelerate the process.
United States Credit Score Rating – Maximum is 850
Excellent (750 & Above)
Individuals with this score generally have no issue in obtaining a mortgage and also benefit from better interest rates.
Scores between 700-749 are nearly perfect, which still allows for better interest rates available.
A credit score between 650-699 will still allow individuals to borrow, however, higher interest rates may apply.
A poor credit score will typically show difficulty in obtaining a mortgage and individuals should focus on increasing their credit score.
Bad (550 & Below)
Those will a bad credit score should seek help in order to fix and increase their score.
How Are Credit Scores Determined?
Many First Time Home Buyer Specialists are asked from their clients how credit scores are determined. Although lenders and financial advisors are the most suitable to answer such questions, there is still some insight that can be provided. Credit scores are based on the history of a client. FICO, which stands for Fair Isaac Co., is used in the U.S. to determine an individual’s credit score. This breakdown from FICO provides how they reach your credit score.
In Canada, it is slightly different. There are still 5 factors used to determine a credit score, however, 3 categories account for 81% of the overall total. These 3 categories include:
1. Recent Credit:
Your recent history accounts for 30% of your score. This is determined based on the number of a times a consumer’s credit has been checked, and signifies if they have been applying for more credit.
2. Payment History:
The payment history accounts for 28% of an individual’s credit score. It checks on the timeliness of payments and the minimum payments being paid on time.
The utilization of credit, which shows the outstanding of overall debt a consumer already has, accounts for 23% of the credit score.
How Can Individuals Increase Their Score?
1. Strengthen your history
For those who may have little to no credit history, it would be wise to be able to obtain credit to help strengthen your position. Items such as secured line of credits, personal loans, credit cards and auto loans are some options to choose from to help you strengthen your credit history. Do not open or obtain multiple credit rapidly.
2. Utilize what you have
A great option to take into consideration, would be to increase the amount on your current credit card or loan, instead of obtaining a new one. First Time Home Buyer Specialists will recommend to their clients to always pay the amount due earlier than the due date, if possible. For example, if you charge something on your credit card, pay it off right away if possible. This help strengthen your credit score and eliminates juggling multiple credit sources.
3. Set Payments to be Automatic
Making your payments automatic can eliminate the chances of forgetting to make a payment, or paying too late. Being late even once on a payment can set your credit score back 20 points, according to parents.com. Create reminders for yourself, or schedule payments based on your history to be automatically made before the due date.
4. Use your credit card
If you have credit cards, and are not using them, it’s harder to create a positive history. First Time Home Buyer Specialists recommend that you use your credit card, in moderation, to help build your positive history. This is not to say that you should max it out to reach near the end of your limit, but to have a healthy balance between using your card, and paying it off.
5. Check Your Credit History
Some statistics show that almost 80% of credit reports have an inaccuracy. These mistakes can costs individual 5 to 50 points off their credit scores. Keeping a close eye on your credit report and dispute any inaccuracies.
Understanding your credit score and creating a budget is the first step First Time Home Buyer Specialists will recommend to their clients. If you find that your credit score is not up to par with expectations, then it’s important to start rebuilding your credit right away, and follow the necessary steps. For more advice on finances, it is also recommended to talk to your potential lenders, as each mortgage brokers will require slightly different qualifications. Once you have completed this step, you will be closer to obtaining your dream home, making the home buying process more enjoyable.