Getting and Keeping a Great Credit Score
Knowing your score is the first thing you need to do before you start to seek credit in Canada. Specifically a mortgage. Qualifying for a mortgage in Canada starts with your credit history and your score.
Contrary to popular belief, if you choose NOT to have a credit card, loan or other revolving credit trade like an unsecured line of credit, it is not GOOD for your credit rating. Not carrying any debt means you do not have the liability, but it also means the lender or creditor knows nothing about you and your repayment history.
In order to get a great credit rating, there are specific things you MUST do:
- GET credit – if you do not have any credit cards, or loans but you have been employed with your current employer for at least 12 months, chances are your bank will be willing to offer you a credit card with a low revolving limit – like $200 – $500.
- PAY this bill every month when it is due – do not go even ONE day over your due date, it will drastically affect your credit score in a very negative light. Try to pay the entire balance down every month. Never carry a balance of over 75% of the limit, for example: you have a TD Visa with a $1,000 limit. Never carry a balance of more than $750, always pay it down to below the 75% mark, if you cannot pay it off entirely.
- USE your card – you cannot show your ability to borrow and repay if you do not use the card. Try to use it for small insignificant purchases of $100 – $200 per month and pay it off when due. This is the quickest way to getting a great credit score.
- AFTER having that card and using it and paying it off wisely – apply for another card at another institution. Canadian Tire Master Card is a good one for people looking to build credit. They will normally at this point offer you a higher limit, therefore giving you the opportunity to continue to show your ability to handle a larger limit and use it responsibly.
Once you have had a revolving credit limit of around $3,500 and have maintained it responsibly, keeping your balance either at zero or low, you should be able to qualify for a mortgage. You will need to have revolving credit for at least a year in order for the lenders to consider you for a mortgage.
Credit Scores
Credit scores in Canada are managed by the credit reporting agency and the machines that drive the system.
A GREAT credit score is one that is 700+
A GOOD score is between 680 – 700
A FAIR score is between 620 – 680 – a score this low will still likely get you a mortgage, but it won’t be as easy
A BAD score is anything below 620 – very unlikely you will qualify for a mortgage without a co-signor
I see mortgage applications with scores as low as 450, normally they have 10 R9′s and several collections. If you have had 1+ R9 in the past three years you likely will not be approved through a conventional lender. That being said, it still might not be hopeless, every case is very individual at that point and will need to be reviewed by an expert to determine options.
