The Greater Toronto Area is an increasingly popular region for Canadians to live because of the job opportunities and good neighbourhoods. Unfortunately, this has made the housing market in the area boom and expensive, because of the high cost, it can be challenging for a typical Canadian consumer to get approved for a mortgage in the GTA.
It is helpful to understand how credit score is calculated, why your credit score is so important, and how you can improve your credit.
How are credit scores calculated?
A credit score is a three-digit number used by banks, creditors, and lenders to assess your creditworthiness. A consumer with good credit is more likely to repay their debt on time which is something lenders are concerned with. The range of credit score goes from 300 to 900, the higher your score, the better. There are two major credit bureaus in Canada. Equifax and TransUnion. They are two institutions that determine your credit scores, each institution issues a separate credit score, so the general public have two options.
It is important to understand the factors that influence your credit score. There are give key factors that influence the calculations of your credit score.
• Payment history. The biggest factor that impacts your credit score is payment history. When you pay creditors on time and in full, your credit score will benefit. Loan givers want to know that you have been consistent and reliable with your payments in the past before extending a new credit, especially for a large transaction like purchasing a mortgage.
• Utilization rates. A utilization rate is the percentage of the credit you are currently using out of your total available credit. The more balance you owe to the credit borrowed, the more challenging it can be to get approved for a new credit. Lenders typically like to see your owning balance to be less than 30% of what your total balance.
• Length of credit history. The longer you’ve been using credit the better. To have a good credit score, you must have a history of credit products for Equifax or TransUnion to determine your credibility.
• Inquiries. Whenever you apply for a loan or a credit card for example, the creditor will pull your credit report which is considered an inquiry. The higher number of inquiries can hurt your credit score because it tells creditors that you have applied for a lot of credit. Note that when you pull your own credit report, there will be an inquiry, but it won’t hurt your credit since it is a “soft” pull instead of a “hard” pull.
What credit score do you need to get a mortgage in the GTA?
In the GTA, the minimum credit score you need to get approved for a mortgage is 640. The higher your score, the better your odds are of getting approved. Lenders want to know you are credible before giving you such a large loan.
How to improve your credit score?
Before applying for any financing, including mortgages, it is very important that you do anything and everything to boost your credit score. Even if you already have a good credit score, you can still improve your score for the best possible odds of being approved.
• Obtain a copy of your credit report, optimize utilization rate, make payments on time and in full to give your credit score a boost. Payment history is the most important factor that determines your credit score. If you have had financial troubles in the past, you may need to spend some time building your credit before applying for a mortgage.
• Obtaining a mortgage is one of the biggest transactions you’ll make in your life, so it is wise to be prepared. Take the necessary steps to improve your credit score, work your way up to 650 and beyond, and in no time, your dream home will be yours.
If you have any questions or guidance when it comes to mortgages. Contact Noble Mortgages today at (416)-241-2227