What Refers to Credit Score?
Credit score is a number, based on a certain information on the credit report. Lenders use the credit score to predict whether or not the person will be able to repay future debt. The credit score mostly changes and it depends on each lender how they interpret and use the credit score.
A credit report provides a financial overview which is used to analyze the credit score. It contains information regarding the financial history of the person. Lenders use it to verify information, observe borrower activity, and review the repayment history. An evaluation of the good credit score relies on a number of factors in the credit report.
What Qualifies as A Good Credit Score?
Credit scores can range from a low of 300 to a high of 850 or 900 (depending on the company, calculating the score).
It’s a three-digit number that encloses all the credit-related activity into one accumulated average. A credit score in Canada can range anywhere from 300 to 900. You are more likely to get approved for credit products such as home equity loan, mortgage loan or second mortgage if your credit score is high. Generally, a score of 650 is considered as a Good Credit Score, because it shows that a person has a low default risk and is a better candidate for lending. A credit score of 750 or higher is magnificent. The higher number indicates a greater probability for the lender to get his money back.
What Is the Minimum Credit Score Required for Mortgage?
Credit scores of 640 and above are considered to be minimum for mortgage approval, though it is possible to obtain a mortgage with a credit score of 620 and above. The credit score requirement for qualifying for a mortgage also consists of several other factors related to the borrower. For example, a borrower with a high income and low debt amount might be eligible to qualify with a slightly lower credit score than a borrower with a lower income and higher debt.
The credit score required for mortgage approval depends on the loan amount and the amortization requested. For instance, a higher loan amount will be considered as risky for lenders, who may, in turn, need a higher credit score. Borrowers also have to undergo a stress test during the mortgage approval method. Mortgage applicants in Canada must prove to their lender that they can afford their mortgage payments into the future, regardless of the interest rate.
What If Your Credit Score Is Low?
For conventional lenders, such as big banks, minimum credit scores are required to qualify for a mortgage. These traditional lenders are quite strict about their mortgage approval requirements, including the credit scores required for mortgage approval.
Poor-credit borrowers have options when it comes to securing a mortgage to finance a home purchase. Credit unions, trust companies, and subprime lenders offer mortgage loans to borrowers who cannot qualify with their banks due to sub-par credit scores. They tend to deal with people who are considered risky by conventional lenders.
If you plan to apply for a mortgage through one of these lenders and have a low credit score, you will most likely end up paying a higher interest rate than if you chose a conventional lender.
You should take time to improve your credit score before applying for a mortgage. As a result, you’ll have an easier time getting approved for a home loan and get a lower rate.
How to Improve Credit Score?
A good credit score is one of the most important factors in getting mortgage approval. It will also save you thousands of dollars throughout your amortization since interest rates are calculated based on your score. Therefore, it is advisable to have a good credit score before applying with any lender. If your score is lower than 600-650, or you just want to improve, there are some simple steps you can take:
- Make sure to pay off your bills in full and on time.
- Be careful not to carry too much debt.
- Never exceed 30% of the credit card limit.
- Avoid applying for too many new credit cards at once.
- Check your credit report for mistakes or indications of identity theft.
- Consider securing your credit card.
Find the Right Mortgage Through Trusted Brokers
If your credit score is lower than your lender’s standards, it’s quite possible that your first mortgage application won’t get approved however, giving up is not an option. If everyone with a score below 650 gets rejected for mortgage, the population of homeowners in most cities will be scattered. Before you apply for a mortgage with any lender, you should maximize your credit score in order to gain access to the best possible interest rates.
Applying for a mortgage works just like applying for another kind of credit product. Your credit score will drop a few points if the lender needs to check your credit report. Whenever you intend to buy a home, do not forget to find a lender that meets your precise financial needs in advance.
An expert mortgage broker at Shant Nalbandian will help analyze your credit scores, provide you with all the necessary documents and procedures regarding a mortgage. For any financial help such as finding lowest rates on commercial mortgage, private mortgage, second mortgage or debt consolidation, get in touch with us, simply call us (416) 894-3976, or email us at [email protected].