What credit score do you need to buy a house?
In this Pro Tip, we chat with Mortgage broker Kevin Mayer in our part 1 “understanding credit”
In today’s pro tip we’re here with Kevin Mayer mortgage broker, extraordinaire to learn a little bit about credit. All right Kevin, I’ve worked in with a lot of buyers and one of the common questions is around credit. What is credit. What is credit history what does it mean.
DAVE: So tell us about what is credit history
KEVIN: your credit history at its simplest sense is essentially you showing the bank how you’ve acted as a borrower in the past with revolving debt like credit cards lines of credits, student loans, vehicle loans even your your cell phone payments. All kind of report on your credit either negatively or positively depending on how you’ve treated those things.
DAVE: So even or bill payments like phones so a cell phone
KEVIN: so a cell phone not necessarily utilities and that kind of stuff. Telecom companies have recently started reporting to Equifax and TransUnion which are the two credit reporting agencies in Canada
What beacon score means?
DAVE: what is that and what is a beacon score. I’ve heard this term before as well what does that mean.
KEVIN: your credit reporting agencies like I said transunion and equifax have about four different scores. They give the beacon score is what people hear the most. That’s your classic score that the banks are looking at when you’re applying for a mortgage.
So your beacon score is affected by that history that you’ve had on past debts.
okay so when you’re looking at scores themselves the banks like to see anything over 620 is ok
Anything over 680 is great. If you’re in the 700s plus then you have essentially perfect credit. It’s all out of 900 and out of 900, yes. And 600 is 640
above is pretty good 620 and of 620.
How would we know what our credit number is?
KEVIN: yes so and and one easy way to do it is.. I have an app that you can download you can get a free credit report. It actually gives you your score off of TransUnion. It does not count as a hit against you. You can see where your score is sitting. It’s limited information in the sense that it doesn’t give you your classic Beacon score. It gives you I believe they call it an ERS score. So it’s a little bit different than what we’re gonna see. But it’s very close okay
DAVE: So they can contact you is a good way to get started on that
KEVIN: I can send them a link to the app and they can download that and get okay history and track it
Credit Score Needed to Buy a House in Ottawa
DAVE: Let’s say you’re planning to purchase a home obviously a credit score is important. They tell us how does that play into a mortgage application
KEVIN: so a CMHC like I said they like to see anything over 620 they want to make sure that you don’t have any recent missed payments. The biggest things that affect your credit score about 35% of your score is affected by that past repayment.
They want to make sure you don’t have any recent missed payments.
Another approximately 35% of your score is is through your limit to balance ratios
DAVE: You can tell us more about that?
KEVIN: if you have a $1,000 credit card, they don’t want you reporting anything over six hundred and fifty dollars a month. On that’s on that line. So if you’re going over that sixty five percent mark you’re seen as being maxed out. Okay.
In that case sometimes it makes more sense to increase that limit to say $2,000 or $3,000 on a credit card to make sure that you’re not getting that sixty-five percent at ratio. And don’t use it.
that actually can be a good thing.
How would one go to improve their credit
Is it? If you’re using or if you have a credit score that’s let’s say less than stellar. How would one go to improve their credit score? Now how long would that take?
KEVIN: it can take anywhere from a year to two years. Okay. I’ve seen it done a little bit quicker but it really depends on what’s happening if there’s bankruptcies involved or consumer proposals collections. All that other stuff really prolongs the process. If it’s just as simple as your credit score is a little bit down in the dumps you want to make sure that one you’re not going over that 65% loan. Loan ratio rate. You want to make sure that you have no missed payments on anything
Equifax and TransUnion want to make sure that you have at least two active revolving trade lines for two years. So what that means is like two credit cards or a credit card and the line of credit vehicle loans are great. Student loans that kind of stuff. okay.
So if you’re a young person and you’re planning and buying your first home a year two years old yeah. You only have that save one credit card. You recommend.
I’d recommend opening up a second one as soon as possible. Even if it’s a thousand two thousand dollars you can use it to buy a stick of gum every month. Just something very small. Just have it revolving back to the credit agencies fascinating the logic behind it is nobody really wants to be the first ones to the party. So if you’re if you only have that one credit card or no credit cards at all the banks are going to be a lot more hesitant to lend you money for a mortgage. They don’t know what your track record is with your other agencies of debt.
DAVE: cool awesome so if someone wants to learn more about credit or submit an application for a mortgage, contact Kevin.