Tips to Improve Your Credit Before Buying a Home

Your credit score plays a big role in whether you qualify for a mortgage and what interest rate you’ll be offered. The good news? There are clear steps you can take to build — or rebuild — your credit before applying.

Keep Balances Low

Carrying a balance on your credit cards isn’t necessarily a problem, but keeping those balances under 50% of the limit is key. For example:

• A card with a $2,000 limit looks better with a balance of $800 than one maxed out at $1,900.

High balances signal risk to lenders and can drag your score down, even if you make every payment on time.

Don’t Miss Payments

This one seems obvious, but it’s critical. A single missed payment can lower your score and stay on your credit report for years.

• Multiple missed payments on different accounts may also require explanation when applying for a mortgage.

• If you’ve had a consumer proposal or bankruptcy in the past, staying current on every bill afterward is especially important.

• A simple fix: set reminders in your phone to make at least the minimum payment on time.

Be Careful With Inquiries

Credit checks, or inquiries, aren’t always a big deal — but too many at once can cost you a few points. Lenders also pay attention to what the inquiries are for. A couple of checks for a mortgage pre-approval is fine, but multiple credit card applications can raise red flags.

Keep Old Accounts Open

Old credit accounts add to your score by showing long-term credit history. Closing them too soon could cause a temporary dip.

• If you have an old card you rarely use, wait until after your mortgage closes before shutting it down.

• As long as there’s no outstanding balance, having it open usually won’t hurt you.

Some Accounts Carry More Weight

Not all tradelines (credit accounts) are equal. A missed mortgage or loan payment will have a bigger impact than a late cellphone bill.

A common rule of thumb lenders use is two tradelines, two years, $2,000 limits. That means showing responsible use of at least two accounts over two years, each with a reasonable credit limit.

Check Your Credit

You don’t need to wait for a mortgage application to see where you stand. You can request a free copy of your report directly from Equifax: https://www.equifax.ca/personal/products/equifax-consumer-credit-report