Keisha hopes to purchase her first home in three years. She is saving for her down payment and watching the housing market. Her mortgage application may still feel far away, yet her financial habits are already shaping the options she will have when the time comes.
As a mortgage broker, I regularly speak with people who are ready to buy a home emotionally. They have found a property, calculated their down payment, and started imagining their lives there. Then we review their credit, debt, and monthly obligations. Decisions made months or years earlier can affect how much they qualify for, the interest rate available to them and which lenders will consider their application.
Your credit score is one part of your financial profile. In Canada, credit scores range from 300 to 900. A higher score suggests that you have managed borrowed money responsibly. I describe credit as borrowed trust. Every time you use a credit card, loan, or line of credit, you are making a promise to repay the money according to the agreed terms. Lenders review your credit report to see how much you owe, how consistently you make payments and how you use the credit available to you.
Your payment history is important. A missed credit-card, loan or cellphone payment can remain on your credit report for years. A pattern of delinquent payments may cause a lender to question whether mortgage payments will be made on time.
Make the minimum or full payment by the due date, even when you are disputing a charge. Set up automatic payments or reminders if you tend to lose track of dates.
Lenders also look at your credit utilization. This is the percentage of your available revolving credit that you are currently using. If your card limit is $5,000 and your reported balance is $4,500, you are using 90 per cent of the credit available to you. That can suggest financial pressure, even when your payments are current. It is recommended to keep your utilization below 30%. Lower balances can also improve the debt calculations used during mortgage qualification.
Be thoughtful when applying for new credit. Store promotions can make a new card sound appealing. Several new accounts and credit inquiries within a brief period can raise questions for a mortgage lender. New monthly payments can also reduce the mortgage amount you qualify for.
Your approval will depend on several connected factors including:
- Income
- Employment history
- Down payment
- Existing debts
- Monthly obligations
- Credit history and
- the property itself.
They also apply current mortgage qualification rules. A strong credit score supports the application, although it cannot replace sufficient income, manageable debt, or an acceptable down payment.
Canada’s two main credit bureaus (Equifax and TransUnion) may hold different information, so it is important to check both. You can access your reports online for free and checking them yourself will not lower your score.
Look for accounts you do not recognize, incorrect balances, duplicate debts and payments reported as late when they were not. Errors can affect your borrowing options. You have the right to dispute inaccurate information for free. Correcting a credit report can take time, which is another reason to review it early.
Twelve months before applying:
- Pull both credit reports and address any errors
- Bring every account up to date and keep it there
- Pay down credit cards, avoid taking on unnecessary debt and limit new credit applications
- Protect your down payment savings
- Speak with a qualified mortgage professional early so you understand your numbers and have time to strengthen your position.
Your future mortgage application is being shaped by the decisions you make today. Every on-time payment, lower balance and thoughtful credit decision help build the financial history a lender will eventually review.
The home may be three years away, but your preparation should begin today.
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