When buying a home, you will have your credit score checked. So let's talk about credit! A credit check helps to verify your financial information, history and habits. Think of it as a examination of your financial health. Lenders use this information to weigh risk and decide on an appropriate amount of money to lend out as well as at what rate of interest. It’s an essential piece in figuring out what kind of property you can really afford.
You should check your credit score months before buying a home, even if you always pay your bills within thirty days. Knowing your actual score will help ensure you get the best possible rates. Checking your credit is also a chance to ensure everything in your file is correct and avoid any surprises down the road. Unfortunately, credit reports are subject to mistakes, which can negatively impact your score. A national survey by the Public Interest Advocacy Centre found a 20 per cent error rate in which Canadians sampled said items on reports were inaccurate or should have been removed. Be alert to identity fraud as well.
If you have a poor credit score or suspicious credit report, your request for a loan could be denied. You may have to delay purchasing or settle for a cheaper alternative. Potential home buyers should also beware that information is kept on file for at least six years, and is not static either. This is why it is important to ensure your credity information is correct.
There are two national credit bureaus: Equifax Canada and TransUnion Canada. Ideally, you should check with both. Anyone can order a free credit report by mail, fax, telephone or in person, but it doesn’t include your credit score. If, however, you opt to pay a fee (usually about $20-$25) to see it instantly online, it will include your score.
While checking your credit is a smart move and is necessary for a major purchase, Know that there can be too much of a good thing. Credit agencies don’t like when multiple groups are digging into your background. It raises concerns, like why are you tapping into so much credit in a short timeframe? Three or more separate and distinct checks a year are red flags that drag your score down. The exception (and this is important) is when people are shopping around for mortgages and get several checks within two weeks. Generally speaking, these will count as a single inquiry.
We are fortunate to work with several mortgage specialists and brokers who will take the time to walk you through all the financial steps you need to take before making a home purchase. Give us a call and we would be happy to introduce you!