You're thinking of buying your dream home. You've discussed what style you want, how many bedrooms you need, and what area of the city you'd like to live in. Now it's time to work with your mortgage broker to start the process of pre-approval so that you can move on to the next and final steps of purchasing your home. But there's a problem—you find out your credit score is lower than you expected. Why does that matter?

What Is a Credit Score

A credit score is a number between 300 and 900, with 300 being low and 900 being high. These numbers are an indication of your credit risk to the lender. In other words, it shows how likely you are to make your payments on time. The higher your credit score, the lower risk you are to a lender.

How Do I Build Credit?

Realistically, your mortgage process starts long before you decide you want to purchase a home. Your payment history on bills and other loans determines your credit score. Building good credit cannot be done overnight, but there are ways to help you get the best credit score you can in the time you have available. Some ways are:

  • Pay your bills on time
  • Live within your means (too much credit isn’t always a good thing)
  • If you can, pay the full amount on credit cards each month when you get your bill, not just the minimum. But if you do find you need to carry a balance, keep it below 50% of the credit card’s limit.
  • Request a credit report from Equifax or TransUnion to know your score

Why Does It Matter?

Lenders use your credit score to measure your character. Part of their job is to manage risk when loaning money and use character, capacity, collateral, conditions, and capital as ways of measurement. Even if you have a high income and your down payment ready, having bad or low credit can impact the lender's decision on whether they grant you a mortgage and at what rate.

While your credit score is important, it's not the be-all-end-all between you getting your mortgage or not. I, Amber Rambally, believe in educating my clients so they can make the most informed decision about their mortgage, and feel confident in their decision. If you're unsure of where to start, reach out to me today!