What can I do to improve my credit score before buying a home

Your credit score is an important measure of your financial health when it comes to the home-buying process, but what exactly is it and how can you ensure it’s in good standing?

A credit score is a number between 300-900 that determines your “creditworthiness” or your ability to make your payments on time and within the agreed contract. The higher your score, the more likely lenders will approve your credit application and offer you the best mortgage interest rate possible. When you apply for a mortgage or seek a preapproval, your lender will run what’s called a “credit check,” which is a report detailing all of your credit products and accounts past and present. This report will also provide the lender (and you) with your overall credit score.

Here are five good practices that won’t harm your credit standing in most cases and may help improve your overall credit score.

Paying your bills on time

Being able to pay your bills on time, and within the agreed contract, is an important factor in determining your credit score. Even if you cannot make the full balance payment, make sure that you are making the minimum payment before the due date each month. A great way to ensure this is to set up an auto-payment with your bank for (at least) the minimum payment. This is a great defence in protecting your score.

Check your accounts online

Get into the habit of checking all of your accounts on at least a weekly basis. This will help you to have a better understanding of where you’re at in your financial journey and where your balances stand. Most big Canadian banks also offer a FREE monthly credit report through their online banking platform which will indicate your credit score.

Look for inaccuracies on your credit card statement

A good habit to get into is reviewing your credit card statements each month. In the current days of online banking and paperless billing, it can be challenging to take initiative and look at your statements. Reviewing your monthly statement can help you spot any inaccuracies on your account and can also help protect you from fraudulent activity which could be detrimental to your credit score.

Be mindful of how many active credit accounts you have opened

Applying for multiple credit products within a short period of time can harm your credit score. Each time you apply for a new product, a hard check is done to your credit report. Too many checks to your report can result in your score going down. The best practice, if you can, is to have one credit card you use for daily purchases, and a second card to have on hand in case that first card does not work.

Watch your balances

The standard rule of thumb is to keep your credit card balance within 30% of your credit limit. For example, if you have a credit card with a limit of $1000, you will not want to carry a balance over $300 during that monthly cycle. Using a credit card for small daily purchases and paying it off within the statement cycle is the most effective way of improving your overall credit score.

In conclusion

Credit scores can be incredibly important to the home buying process. They represent your creditworthiness and may help creditors decide what kind of risk you are and what interest rate you will be offered. Pay careful attention to your credit history so you know where you stand, and remember to use these tips if you are working toward improving your score.