Credit Score – What does that mean!
If your mailbox is full of credit card bills, make sure you deal with them right away. Ignoring them could have long-term effects on your credit score.
A credit score is a number that lenders use to estimate risk. While each lender may have their own way of dealing with your credit score, in general, the higher your score, the lower the risk and therefore the more likely the lender will extend a loan to you at a favourable rate.
You can get an idea of your credit score from Canadian credit reporting agencies Equifax and TransUnion. The answers to the following questions can influence your score:
• How long have you had credit, and what types of credit are you using?
• What’s your history of making payments? Do you carry a balance on your credit cards? Have you missed any payments?
• Do you have outstanding debts? Are you close to your credit limit?
• Have there been a number of recent inquiries about your credit history? (This will suggest you are trying to get more credit.)
• Do you have any record of bankruptcy? Have any of your debts been sent to a collection agency?
A good rule of thumb is if you do have to carry a balance from month to month, make sure to pay down the outstanding balance below 75% of the limit amount (ie. if you have a credit card with a $1000 limit, make sure the balance is below $750).
While a good credit score typically allows the borrower more financing options and better interest rates, a lower credit score doesn’t mean a borrower has no options – it just means the borrower needs to be open to investigating alternate borrowing options with their mortgage broker.
Give us a call with any questions you may have on credit scores, or any other mortgage related inquiries.
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