Couple asking themselves how to increase their credit score to buy a home

How to increase your credit score to buy a house?

Buying a home can be complicated, especially when it’s your first home. In this context, having a good credit score becomes crucial if you want to be approved for a mortgage loan to be able to buy your first home. For banks, your credit score is a determining factor in assessing your ability to take on your financial responsibilities and being able to repay. In this article, we will give you tips on how to increase your credit score to buy a home

Tips for increasing your credit score quickly

1. Do not exceed 30% of your credit card limit

When you have a credit card, you have several options for paying off your credit. Paying off your credit card balance in full each month is the best way to increase your credit score for buying a home. However, there are times when you may not be able to pay off your credit in full. In this case, it is advisable not to use more than 30% of your credit limit. If you decide to pay only the minimum balance each month on your credit card, you will not be able to increase your score quickly. In fact, this method is not enough because there will still be too much on your credit statement. 

(* Canada.ca & TD

2. Pay your credit card every month or as soon as possible

Whether it’s for any bill, paying your credit card late is never a good thing. In fact, each late monthly payment will impact your credit score since your bank will consider you less reliable to respect the allotted time. Moreover, you avoid increasing your interest rates by paying your credit card every month or as soon as possible. If you don’t make the required monthly payment by the due date, you may be subject to a temporary or permanent increase in interest rates. In order not to forget the date indicated, you can schedule your credit card payments via your bank’s mobile app and you can then easily go and pay your balance as soon as possible. 

(*Government of Canada)

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3. Respect your budget

Making a budget is one of the best tips for staying within your 30% credit card limit or paying off your card as quickly as possible. Although making a budget may seem like a laborious task, it will help you to have an overview of your financial situation. It will make paying off your credit card much easier by predicting the maximum amount you can spend each month. Your budget should consider how much money you have coming in and going out and what you plan to pay off first if you have any debt. 

4. Use your credit card as much as possible

To improve your credit score quickly, you can also use your credit card as often as possible. If you only use your credit card a few times a month, your score will increase slowly. Your score will increase much faster by increasing your credit card purchases and paying them off immediately. 

However, this advice is only applicable if you have the ability to pay off that credit. Otherwise, this advice will be counterproductive. In addition, many expenses come with purchasing a house, including preparations for moving. Therefore, it is useful to use your credit card for these expenses to increase your credit score.

 (*CPA)

Factors influencing the credit score for buying a home

  • Your unpaid balances on your credit card or line of credit
  • Your credit history
  • Your payments frequency
  • The type of credit you have
  • Your bankruptcy history
  • Your frequency of new credit applications 
  • Your unpaid debts referred to a collection agency 

(*Manulife)

The importance of a credit score when buying a home

In Canada, a credit score can range from 300 to 900. According to TransUnion, you need a minimum credit score of 760 to be considered good. For Equifax, this number is a minimum of 700 credit score. A poor credit score can seriously jeopardize your mortgage approval. Not to mention if you don’t have a credit card, that’s also very bad since the banks won’t be able to determine your credit score. This is why it is suggested that you raise your credit score as soon as possible.

A good credit score is extremely important to get a better interest rate when applying for a mortgage. In fact, having a good credit score can save you a lot of money in interest charges on your mortgage. If you have a low score, you will be considered more at risk and therefore, you could be charged extra. So it’s to your advantage to make sure you improve your credit score when buying a home.

(*Manulife, Government of Canada, TransUnion

Frequently asked questions about homebuyer credit scores

What is a good credit score in Canada?

In Canada, Equifax considers a good credit score to be between 660 and 724. For TransUnion, this figure varies from 743 to 789. Generally speaking, for all institutions combined, a good credit score ranges between 670 and 739.

(*Hardbacon & TD)

How long does it take to rebuild your credit card score?

Rebuilding your credit card rating takes more than a few days. It takes at least months to see an improvement and a full year to drastically change your credit score. However, it all depends on your situation and ability to repay your debts.  

How do we see our credit score?

If you live in Canada, you can obtain your credit score for free through Equifax or TransUnion once a year. You can apply by mail and receive your credit report in the mail a few weeks later. You can also apply online, but you will have to pay a fee. In addition, some banks such as Desjardins, BMO, RBC, Scotia, or CIBC allow their customers to consult their credit score online for free via their online site. All you have to do is connect to your bank account via the bank’s portal. 

(*Hellosafe.ca)

Conclusion

Mortgages in Canada can be difficult to obtain if you do not have a good credit score. A good credit score is extremely important if you want to buy a home. Not only will your credit score determine whether or not you qualify for a mortgage, but it will also be important at the approval stage to determine the rate and terms of your loan. We hope these tips will help you increase your credit score for your home purchase!

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