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How can you get a best rate on your mortgage? The answer could be in your credit score.
What’s a credit score?
When you apply for a first or second mortgage, or a debt consolidation loan, one of the first things that a mortgage broker or the bank checks, is your credit history and credit score. The credit scoring system was devised by credit scoring agencies to help mortgage and loans lenders to quickly evaluate a potential borrower’s credit worthiness. The system was found to accurately predict financial risk over time. Credit scoring is used by mortgage companies, banks, insurers, landlords, employers, and utility companies to evaluate your credit behaviour.
The basic credit scoring formula takes into account several factors from your credit profile. The impact of each factor fluctuates based your credit resume:
- Payment history – A good record of on-time monthly payments will help boost your credit score.
- Outstanding debt – Balances above 50 percent of your credit limits will harm your credit. Aim for balances under 30 percent.
- Credit account history – An established credit history makes you a less risky borrower. Think twice before closing old accounts before a loan application.
- Recent inquiries – When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.
- Types of credit – A healthy credit profile has a balanced mix of credit accounts and loans.
When you are preparing for a major purchase make sure you check your profile and score first. Looking at your profile and score a few months before your loan application will help you get a complete picture of your credit health and give you time to make any needed changes to your credit.
Worried if your credit score makes the grade? If your credit score is above 680 you will likely qualify for a best rate mortgage loan. Under 600, you may have trouble receiving credit at affordable interest rates.
If your credit score is a little low, pay your bills on time, reduce your debt, remove inaccuracies and avoid new inquiries for a few months to give it a boost.
Get answers to your credit questions in the Credit Learning Centre on our Axcess Mortgage and Loans Financing website. We’ve got the information and resources you need to take charge of your credit today.
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