Credit Improvement Tips for Potential Homebuyers

Tristan Powys (Credit Counsellor) @ Lucid Living

“The fact is, right now is absolutely the best time we have ever seen to purchase a home,” said Adv Kate Thambiran, CEO of LUCID Clear Credit. “Low home prices and insanely low interest rates are making the dream of home ownership more affordable than ever. But banks are making it a little more difficult to secure a home loan, which makes a favorable credit score all the more important.”

According to Thambiran, when qualifying homebuyers, mortgage lenders primarily look at the credit score. Any credit score above 750 typically qualifies a potential homebuyer for the prime interest rate, whereas anything below this number could result in a higher interest rate and fewer loan options. A credit score below 620 would likely result in no financing options whatsoever.

“Simply put, if you want a good interest rate, you need to have a good credit score,” said Thambiran. “But if your credit score isn’t ideal, understand that there are some basic ways to repair it.”

Thambiran suggests the first step to improving one’s credit score is to know what that credit score is. LUCID Clear Credit offers a service whereby anyone can get a free credit report and consultation with a credit counsellor, to assist potential home-buyers identify whether they will qualify for a home loan.

Beyond providing a credit score, a credit report is valuable because it determines what may be negatively affecting that credit score, which makes it easier to develop a plan for improving it. When reviewing the credit report, Thambiran suggests determining how much revolving debt one currently has and to look for obvious reporting errors.

“Revolving debt is money owed to a creditor that sets a monthly payment based on an overall balance,” said Thambiran. “The best examples are credit or retail store cards.”

When looking at revolving debt, credit bureaus determine if the balance held on a line of credit is above or below 30 percent of the account’s credit limit. All accounts above 30 percent negatively affect the credit score.

“The key is to pay down any revolving debts to get them to a point below that 30-percent mark,” said Thambiran. “For every card that you pay down below 30-percent, the result can be a 15 point boost on your credit score.”

“Let’s say a person was looking for home, but their credit score was 710 … 40 points below the credit score that will get them a prime interest rate,” explained Thambiran. “If that same person had three credit accounts that they could pay down below the 30-percent mark, the result could be a 45-point increase in credit score, meaning the ability to secure the prime interest rate.”

Otherwise, it’s worthwhile to search for blatant errors on a credit report. “Many people assume a report is going to be accurate, but actually we find 30- to 40-percent of credit reports have negative items that are reported incorrectly,” said Thambiran. “This could include incorrect balances, unlawful blacklistings and incorrect judgments, etc.”

LUCID Clear Credit offers a service to help repair credit problems and rehabilitate poor credit ratings. “For anyone considering applying for a home loan, its advisable to first get a copy of your credit report and have a consultation with our trained credit counsellors,” said Thambiran. “We basically answer any questions you have regarding the information in your credit report and go through all the credit improvement steps for you and dispute any incorrect information, while helping settle debt and collections issues.” “This ensures that when you do apply for a home loan, there are no nasy suprises or disappointment,” says Thambiran.