Preparing your credit for a mortgage application

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While it's easier than ever for Canadian homebuyers to lock in low mortgage rates, it's important for individuals to understand how their credit will influence the process. While current mortgage rates are currently at historically low levels, the best rates will only be made available to borrowers who can show exemplary credit on their mortgage applications. It's with this in mind that prospective homeowners should do all they can to prepare their credit for the mortgage application process.

Check your credit score
The first step for homebuyers should be to receive a copy of their credit report. Canadians are allowed to order as many free copies of their credit report as they require each year, as long as the request is made in writing for a printed copy delivered by mail. While these requests will be noted in an individual's report, they will not affect their credit score.

Once an individual receives a copy of their credit report, they should find out what their credit score is. Scores range between 300 and 900, with higher scores being better than lower ones. If the score is on the low side, individuals can begin formulating a plan to raise it. One idea is utilizing the Canadian government's free publication, Understanding Your Credit Report and Credit Score. This publications explains how credit reports work and offers ways to improve credit scores. The publication can be found online at the Financial Consumer Agency of Canada website, or a paper copy can be ordered at no charge by Canadian citizens. 

Understand what harms credit scores
There are many factors taken into account when a credit bureau rates an individual's credit score. Behaviors and circumstances such as late payments, delinquencies and short credit history can all negatively impact an individual's credit score. While not having enough credit history is bad, borrowers should keep in mind that too much credit can be a negative as well. Opening too many accounts within a certain time frame and having high balances will lower a credit score. Once an individual knows what types of behaviors to avoid, they can work on raising their score.

Dispute errors
The credit bureaus that keep track of individual's credit histories are not immune to making mistakes, so it's important for borrowers to regularly check their credit report to ensure there are no errors or inaccuracies. If any false information is found, contact the offending credit bureau to dispute it. It's important to have proof to back up why the information is wrong. Once the information has been changed, it's important to have new copies of the credit report sent to any financial institutions that may have been working off inaccurate information.

Be timely
While there are several ways for individuals to improve their credit scores, the simplest way is to pay bills on time. Staying current on debt obligations will strengthen credit scores while also showing lenders that a borrower is capable of keeping up to date with their financial responsibilities.

Be honest
It's essential to be forthcoming with mortgage lenders. If an individual's credit score is less than perfect, they may be tempted to try and deceive lenders by leaving out important information, but this is always a mistake. Even if an individual's credit is poor, taking the time to explain past financial struggles and current circumstances can go a long way toward helping a lender secure the right loan. There are mortgages available for all types of borrowers, but lenders can only utilize these if borrowers are upfront and honest.

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