Despite applying for a mortgage even with bad credit, it is a good idea to boost your credit score. Apart from making getting approval for a mortgage more accessible, a good credit score allows getting a lower mortgage rate. Here are proven ways to boost your credit score when thinking about applying for a mortgage.

Don’t make multiple credit inquiries.

Whenever you apply to get credit, the lenders have to check your credit history. However, the inquiry reflects on your credit report. Keep in mind that each credit inquiry has a significant negative impact on your credit score. You have to avoid making a lot of inquiries in a short period since lenders get the impression that you’re always seeking credit.

Only apply for credit when you have no other option, like when buying a home. Avoiding excessive credit inquiries will make a significant positive impact on your credit score.

Limit credit utilization to below 30 percent

Pay the balance fully every month to avoid interest when having a revolving line of credit or credit card. This is very important for credit cards that carry a high interest. A great idea to maintain the balance is to keep it not more than 30 percent of the overall limit. An increase in credit utilization will negatively impact your credit score.

Credit history is essential.

Applying for a loan requires having a credit history, whether good or bad. Lack of established credit history is likely to have your mortgage application not approved. A more extended credit history with some credit products such as credit cards or a car loan is good. The credit should reflect in your credit report for some period.

When planning to get a house, it is possible to get bad credit mortgage in Ontario. When you lack credit history, the lender might request for a cosigner or request that you wait a bit longer to get some credit history before applying for the mortgage.

Clear all unpaid collections

If you delay making a loan or credit card payment for more than three months, the lender is likely to send a third party debt collector after you. These will use all means to collect the amount you owe to their client. Keep in mind that no lender can approve your mortgage with evidence of a pending collection.

Clearing all collections is a top priority when looking forward to improving your chances of getting your mortgage application approved. The rule of thumb is to pay all small balances to avoid ruining your credit.

Other consider before applying for a mortgage

Source of income

Apart from improving your credit score, your source of income matters when applying for a mortgage. Lenders require proof of a stable source of income enough to service the payments. Lenders depend on debt servicing ratios, including Total Debt Servicing (TDS) and Gross Debt Servicing (GDS) to determine your ability to pay using your income.

GDS determines monthly housing expenses against gross monthly income. The ideal ratio should be less than 32 percent. Alternatively, the TDS focuses on other debt payments you might have apart from the mortgage against your gross monthly income. A lower percentage is better, and the maximum should not exceed 42 percent.

Job security

Regardless of your level of income, there’s a possibility of not qualifying for a mortgage. This is for scenarios where your employment history is recent. Lenders usually have second thoughts regarding giving loans to people on the probationary period at their workplaces. Those in self-employment or with fluctuating income have to show an income history of at least two years to approve their mortgage application.

With this in mind, it is not a great idea to seek new employment after or when planning to apply for a mortgage. Timing at your place of work is essential to ensure that you increase the chances of having your mortgage application approved.

Down payment

When planning to buy a house, you need a down payment. This is the amount of money as a percentage of the overall total when purchasing a home . The down payment marks your initial contribution towards owning the property, and the mortgage provides the balance. Keep in mind that the down payment depends on the lender and your credit history. So, you have to do your homework to find out the amount of down payment you need when considering a mortgage.

Closing costs

Lastly, you have to budget for closing costs as well when planning to buy a house. These include appraisal costs, lawyer fees, title insurance, or home inspection.

The good idea is to finance the closing costs from your pocket. This will protect you from hiking your loan payments.

Wrapping up

When planning to apply for a mortgage, the first thing to worry about is finance. Having a good credit score is very important. However, now it is possible to apply for a loan even with bad credit.