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How your credit score affects your mortgage application


June 30, 2012 

How your credit score affects your mortgage application 

Did you know you know you cannot access the best advertised mortgage rates if you have a poor credit score? you need minimum score of 600

There are five different factors that go into your credit score, and understanding them will help keep your credit score healthy so you can access the best mortgage rates when t he time comes to buy a home.

1. Payment history: The bulk of your credit score is made up from your history of delinquent, past-due and late payments. If you miss a payment, your credit score takes a big hit. That means a missed payment of $1.00 is still scored negatively, even if it’s only a dollar. Your credit score also factors in the frequency at which you miss payments.

2. Amounts owed: This portion of your credit report tracks the total amount of your debts. This can include credit card debt, student loans, mortgages and lines of credit to name a few. It also keeps track of who you owe and for how long.  The popular myth is that bigger dollar amounts affect your score, when in reality, it is only part of the equation. Having a $1000 credit balance at the end of the month is better if you’re available credit is $100,000 versus only $5,000.

3. Length of credit history: Also important to your credit score is the age of each credit account in your name as well as the account activity on them. To help improve your score, it is better to keep older credit cards open because their age benefits you.

4. New Credit: The number of times you apply for credit, whether it’s for a car loan or store credit card, will affect your score. Each time someone other than yourself accesses your credit report – your score takes a hit. However, it is okay for multiple lenders to access your credit score within 30 days for the purpose of comparison shopping for the same product such as a mortgage loan. Typically, these are treated as a single inquiry and will have little impact on your credit score.

5. Types of credit used: The greater the variety of credit accounts you have (line of credit, car loan, mortgage, etc.), the better your standing. The reason is because it shows that you can handle re-occurring monthly obligations (revolving credit) and control the access you have to your available credit. However, having too much credit can mean a lower score because it can signal that you have unhealthy borrowing habits. Lenders like to see that you can responsibly manage your debt.

Some other tips:

– Avoid signing up for promotional store credit cards because the more times your credit is accessed, the more harm your score takes. Plus, the teaser rates or ‘gift’ come at a hefty price in the form of inflated interest rates as high as 30% or more.

– A score lower than 600 may require you to seek financing from a ‘B’ lender, who will enforce stricter rules and charge more to get financing because you pose a greater risk of default.

Contrary to popular belief, a bigger down payment or better credit score (above the required minimum) will not impact your negotiations for a better mortgage rate.

For further question, please contact your banker or mortgage broker.

Please click podcast listen to Cantonese interview

 

 

 

 

 

 

 

 

 

Tina Mak Personal Real Estate Corporation
Your Vancouver Radio Realtor
(The Bridge from East to West since 1992)
#1 Female Agent since 2002 @
Coldwellbanker Westburn Rlty
International President’s Circle Award
Top 5% in Vancouver Real Estate Board
International Real Estate Info. Provider
Co-host of AM1320 Radio Investment Show
5489 Kingsway, Burnaby
BC V5H 2G1
Tel:604-412-5860
http://www.TinaMak.ca (温哥华中文地產網頁)
Email: tinamak@tinamak.com
“Knowledge Empowering Investment Decisions”
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