Your credit score is a key factor when it comes to securing a mortgage. A higher credit score can open the door to better mortgage rates and terms, saving you thousands of dollars over the life of your loan. If you’re preparing to buy your first home or refinance an existing mortgage, improving your credit score can make a significant impact. Here, we share essential tips to help boost your credit score before applying for a mortgage. At XLG Mortgage Group Ltd., we’re proud to have an AFCC® (Accredited Financial Counsellor Canada®) on staff, offering expert assistance at no additional cost to our clients.
1. Check Your Credit Report for Errors
Start by reviewing your credit report from major credit bureaus (Equifax and TransUnion in Canada). Check for inaccuracies such as incorrect late payments or accounts that don’t belong to you. Disputing and correcting any errors can improve your score and ensure that your financial record is accurate.
Pro Tip: Regularly reviewing your credit report helps maintain an up-to-date and error-free financial profile. Our AFCC® at XLG Mortgage Group Ltd. can guide you in understanding your credit report and disputing any discrepancies.
2. Pay Your Bills on Time
Payment history makes up 35% of your credit score, making it the most significant factor. Late payments can remain on your credit report for up to seven years. Set reminders or enable automatic payments to ensure you never miss a due date.
Advice: If meeting payment deadlines is challenging, contact your creditors to discuss potential payment plans. Taking proactive steps can prevent late payments from affecting your score.
3. Reduce Your Credit Utilization Ratio
Your credit utilization ratio is the percentage of your available credit that you’re using. Aim to keep this below 30% for a healthier credit score. For instance, if you have a total credit limit of $10,000, try to keep your balances under $3,000. Reducing credit card balances can significantly boost your score.
Quick Tip: Making extra payments whenever possible can help lower your balances and improve your credit utilization.
4. Avoid Opening New Credit Accounts
Applying for new credit accounts results in hard inquiries on your credit report. Multiple inquiries within a short period can lower your score. Avoid opening new credit accounts unless absolutely necessary while preparing for a mortgage application.
Insight: Lenders see multiple recent applications as a sign of financial instability. Keeping your credit profile stable is key. Consult our AFCC® at XLG Mortgage Group Ltd. for strategies to maintain a solid credit standing.
5. Keep Old Credit Accounts Open
The length of your credit history is another important factor in your credit score. Keeping older credit accounts open, even if you don’t use them regularly, can positively impact your credit history.
Note: Closing old accounts reduces your total available credit and can increase your credit utilization ratio. If you need to close an account, opt for newer ones rather than those with a long history.
6. Diversify Your Credit Mix
Having a mix of credit types (e.g., credit cards, installment loans, lines of credit) can positively influence your score, accounting for about 10% of your credit score. However, only take out new loans if they align with your financial plan.
Expert Tip: Unsure how to manage your credit mix effectively? The AFCC® at XLG Mortgage Group Ltd. is here to provide personalized advice and solutions.
Why Your Credit Score Matters for Mortgages
A higher credit score improves your mortgage approval chances and can help you qualify for better interest rates. Even a slight improvement in your mortgage rate can result in substantial long-term savings. For instance, a $300,000 mortgage at 3.5% interest versus 4% can save you thousands of dollars over the loan term.
Work with XLG Mortgage Group Ltd.
Improving your credit score can seem overwhelming, but it doesn’t have to be. At XLG Mortgage Group Ltd., our team, including an AFCC® (Accredited Financial Counsellor Canada®), is ready to help you boost your credit score and navigate the mortgage process at zero additional cost. We are committed to ensuring you’re prepared to secure the best mortgage terms possible.
Contact XLG Mortgage Group Ltd. today to leverage the expertise of our AFCC® and trusted Mortgage Agents and Brokers. We’re here to support your journey to better credit and successful homeownership.
Final Thoughts
Improving your credit score takes dedication, but the benefits are undeniable. By following these tips and working with experts who understand the mortgage and credit landscape, you’ll be well on your way to securing favorable mortgage terms. Trust XLG Mortgage Group Ltd. to guide you with professionalism, knowledge, and client-focused service.
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XLG Mortgage Group Ltd.