When applying for a mortgage, whether you’re purchasing a new property or refinancing an existing one, one of the first steps we’re going to do is pull your credit report to submit with your application. Your credit score can affect your ability to qualify for a loan and it also dictates what interest rate you can get.
Paying your bills on time is a key part of maintaining a good credit score, but it can sometimes get a bit confusing as to what actually affects your credit score and what’s just a myth.
Here are 5 common myths about your credit score:
You only have one credit score
In Canada, there are two major credit bureaus, TransUnion and Equifax. Each bureau may receive slightly different information about your credit histories and use a different algorithm – therefore they may produce slightly different scores.
Each lender has their own preferred credit reporting agency and some even have a system of their own to weigh your creditworthiness. Your score between bureaus shouldn’t vary too much, so if you have been checking your TransUnion score, but your lender uses Equifax to qualify you, there’s no need to worry.
Co-signing doesn’t affect your credit score
When you co-sign on a loan, whether it’s a car loan or a mortgage, you are also responsible for that debt. If the main borrower fails to make their payments on time, this can negatively affect them and the co-borrowers’ credit scores.
Having no debt gives you a perfect credit score
Credit scores are based on your ability to manage debt. Lenders want to see your payment history and how you handle your debts. It may seem counterintuitive, but living debt-free won’t give you a perfect credit score. If you’ve never taken out any credit at all, you won’t even have a score which can make obtaining a mortgage difficult.
Checking your credit score lowers your score
This myth is a bit of a half-truth. Your credit score might be negatively affected if too many third parties inquire about your score within a short timeframe – like if you apply for a mortgage, open a new credit card, and buy a new car all in the same afternoon. These requests are called hard inquiries, and will only affect your score by a few points.
You can request a free credit report from TransUnion and Equifax once a year that won’t have any effect on your credit score. There are also third-party websites, like Borrowell or Credit Karma, that perform soft inquiries and they allow you to monitor your score without impacting your score.
Higher paying jobs mean higher credit scores
Your credit score is determined by your credit usage, balances owing, and the length of your credit history. Your credit scores focus on how well you pay your bills, not how much money you have available to pay your bills. While a higher salary may make it easier to manage debt and credit card balances, it doesn’t directly affect your credit score.
There are a lot of quick fixes promoted to boost a low credit score, but what it all comes down to is not taking out more debt than you can afford and paying your bills on time. If you need help managing debt or putting together a credit score recovery plan, call Gail Sylvester Mortgages. We’re here to help get you back on the right track.