More and more people seem to be struggling with finances in this day and age, despite the improved living standards across the globe. Yet, with such improvement, costs also increased, and people’s paychecks don’t seem to be increasing at a proportional rate. Some people try to invest some of their money in a side project to help them generate a passive income, like in the stock or real estate market. While those definitely are great options, that is a luxury that many cannot afford. The problem is, people’s debts keep mounting up, which significantly affects their credit score. And that can make your life a lot more complicated down the line. If you found a house that you like, for instance, your credit history will make a difference in all aspects of your application for mortgage down payment in Canada.
Do you need great credit to get a mortgage?
The short answer is yes, you will most likely need at least a good credit score to get a mortgage. How much is that? Well, that is entirely up to the lender. Each one decides the minimum accepted credit score that doesn’t pose too much of a risk for the lender. So, if you went to a bank and asked for a mortgage, it is the bank that will decide what your minimum credit score needs to be. But there isn’t a certain standard limit out there for buying houses.
How does the credit score affect the mortgage?
Your credit score makes all the difference in the world when it comes to taking out a mortgage or any loan for that matter. The problem is, you are a risk to the lenders if you have a bad credit score. They automatically assume you make poor financial decisions, even if that weren’t true. The worse your score is, the riskier you are as an applicant. This is why you will have to pay higher interest rates than the average person with a good credit score.
Those rates will vary from one lender to the other, but you can rest assured that they will be significantly higher than if you had a better credit history. Your score will also affect the kind of mortgages you can apply for, because there are certain types that you might not qualify for. The amount of money you can borrow is also affected, and even the application process becomes harder and more complicated if you have a poor credit score.
What can you do?
A lot of people find themselves in this tough spot, even if they made all the right calls up until that point when their credit score deteriorates. Sometimes, things just don’t go your way. Fortunately, there are some things you can do to improve the situation. More than one source will advise that you can start by considering taking out a personal loan. You might ask yourself how a personal loan can help you get better rates on your mortgage and improve your score. The answer is debt consolidation. One of the reasons why a lot of people struggle with credit scores is because they have too many different debts to pay, and they ultimately fall behind on a payment here or there. When you take out a personal loan for debt consolidation, you can use it to pay all your various debt so that you have only that loan to pay back.
This will help you more than you know because you will have just the one monthly payment to make, and you can work harder on improving your credit score. Making timely payments would be easier, for starters, and that alone is key to bettering your credit score and in turn getting mortgages for better rates.
Commit to improving your credit score
Even if you took out a loan to consolidate your debt, trying to improve your credit score entails a lot more than that, and you have to be fully committed to the process if you want to see tangible results. This means you can’t take out any new credit cards, and you will need to be wiser with your spending habits. All those things are taken into consideration by lenders, and you can rest assured that your spending habits and financial decisions will be under scrutiny. So, tread lightly.
Having a good credit score will make your life much easier. You can apply for any type of mortgage you want, and you will get better interest rates, loan-to-value ratio, and even more affordable private mortgage insurance (PMI). It is not impossible to improve your credit score, but you will just need to tighten the belt for a while and make sound financial decisions.
I’m a 20-something stay-at-home mother and wife. I have an amazing husband, a beautiful daughter, two loving dogs, and a lazy cat. I wouldn’t change my life for anything! I love to read, listen to music, cook and blog!
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