Credit Matters – The credit game is a tricky one, no matter where you live. If you have zero credit, which tends to happen to immigrants or young adults fresh out of school, you are entering the credit market with zero marks against you but also zero for you. This means that while you don’t have bad credit, you also don’t have proof of good credit, which makes it very hard to get approved for loans.
The best way to get past this is to apply for a secured credit card or loan, which you can pay off, on time, over time, to establish credit. From there, getting good credit means paying bills on time and managing your credit well.
Why Credit Matters
If you have had credit problems in the past, whether through late bill payments, lawsuits, or repossession, then it’s likely your credit score will be low. Low credit scores with a history of bad credit decisions will make it very hard for you to get a mortgage, especially without a significant amount of money down.
The worst part about having no credit and bad credit is that when you get a loan or line of credit, you will pay a much higher interest rate. Banks do this to accommodate the risk involved in funding you. This is why getting a home loan with a low credit score is a bad idea. Over 30 years, just a percentage can mean tens of thousands of dollars in additional costs.
The best way to get a low-interest rate is to have a good credit score, and the best way to do that is to guard your credit fiercely. In Canada, two bureaus use credit scores: Equifax and Transunion. They are tracked using your social insurance number (SIN) and will follow you everywhere you go.
Make sure you pay all bills on time and keep a low debt-to-income ratio. For example, if you have a few credit cards, it’s OK to carry a balance, but if they are all maxed out, your credit will likely be negatively affected. Fortunately, it’s easy to fix this by paying the debt down and carrying no more than a 10%-25% balance. When doing that, you’ll build credit much quicker because you will have proven that you can manage credit. Read
To learn more about how your credit might affect your chances of getting approved for a home loan, visit our free mortgage calculator & quotes tool. You’ll get five free quotes from qualified local lenders to help you analyze your credit score and see how you can improve your situation. You’ll also use the mortgage calculator to test interest rates and see how a single percentage point can make a massive difference in your monthly payment. It’s free, and there’s absolutely no obligation!