How to improve your credit score

Thursday Oct 08th, 2015


I think it will make sense if I talk a little bit about a credit score and how to prepare yourself for a mortgage application in the best way possible since I started my blog from the post on mortgages.

I don't think anyone doesn't realize the importance of a credit history in applying for a mortgage. However, life happens and our financial situations get screwed (pardon my language) from time to time. But as long as you take a fast control of your finances, you can actually re-build your credit score from the scratch.  

As a disclaimer, I do always recommend to talk to a professional financial specialist before contemplating a home purchase. I am not a mortgage specialist or a financial adviser. The information you'll read here can be easily found on many, many other websites. As I Real Estate professional, however, I am always asked the questions about the mortgages. And since I have financial education and constantly work with the mortgage professionals, I am taking a liberty to give you some general advice.

But before I start, let's refresh some information: Credit scores typically range from 400 to 900. Good scores are 600 and higher; anything over 750 is considered excellent. So, let's begin:

1. Always pay your bills on time. Yes, I know you've already heard it hundreds of times from all financial gurus, your parents, your partners/spouses and everyone else. It's a no-brainer! However, it's the most important and the easiest way to increase your credit score and maintain it in a decent range. Pay your bills and pay back your debts on time and consistently!

2. Use your credit cards, know your credit cards balances and never max them out. To show your creditworthiness and establish your credit history, you need to actually use your credit cards. Some experts say that you need to use no more than 50% of your credit limit to improve your credit score. But, of course, you need to pay all balances in full (if possible) to keep it in a decent range.

3. The credit cards you've use for at least 6-12 months are more beneficial to your credit score than the new ones. So if you contemplate on buying a home in the next year or so, don't close your old credit cards and open the new ones. Your score will suffer and you may not qualify for a good mortgage rate.

4. Don't allow to check your credit history often, if you're thinking about buying a new property (a house, condo, etc.) in the near future. Too many credit history inquiries in the short period of time will lower you credit score.

5. Check your credit report every year. Every Canadian has a right to receive one credit history report for free annually from either Equifax or TransUnion. However, you will have to pay if you're curious about your credit score. Peruse carefully your report for mistakes as 70% of reports contain mistakes. If you found a mistake in your credit report, try to correct it as soon as possible. Contact the credit reporting agencies to inquire about the proper steps.

Thank you for attention!

Best wishes,

Olesa Islamova

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