“Beware of little expenses; a small leak will sink a great ship.”
Benjamin Franklin
What is Credit?
Credit is the ability for you to obtain goods or services, based on an agreement where you are responsible for future payments. Some examples; credit cards, vehicle loans, lines of credit (LOC), student loans.
A lender reviews your credit history, income and down payment to determine mortgage qualification.
Your credit is evaluated, taking these factors into consideration:
- Credit score – 3 digit score based on a statistical formula
- Amount of outstanding credit – Lenders like to see your debt to credit ratio less than 30%
- Duration of established credit – Lenders like to see 2 trades established for 2 years
- Repayment history – late payments are reflected on a credit report, as are consumer proposals, and bankruptcies
- Types of credit (credit cards, vehicle payments, LOC, student loans)
Your credit score factors into your mortgage borrowing ability as GDS and TDS lending ratios come into play. If your score is above 680, the ratios are GDS 39% and TDS 44%. Scores below 680 are subject to lower ratios of GDS 35% and TDS 42% resulting is lower borrowing power. GDS and TDS explained here.
Sometimes things go sideways and we may have missed a payment or have been late, overextended credit, or have worked out a consumer proposal, don’t give up! By taking some steps in the right direction your score will improve and you’ll reach your dreams.
Depending on the situation ‘bruised credit’ is not the end of the world. Fees and higher interest rates are involved and this option is usually used as a short term opportunity, but if that perfect property is at your fingertips, it never hurts to ask the question.
It is good practice to review your credit report periodically to ensure accuracy. You can obtain your individual credit report by contacting Equifax Canada or TransUnion.
