Credit Score

Each credit-reporting agency uses their own proprietary formula to calculate credit scores. Your credit score is calculated based on the following factors:

• Past Payment History – Late or missed payments, overdue accounts, bankruptcies and any written off debts will all lower your credit score
• Credit Utilization – How much debt you have as a percentage of your available credit will also affect your credit score (you should try to use less than 35% of your available credit)
• Credit History – How long you’ve had accounts open (the longer, the better)
• New Credit Requests – How recently and how often you’ve applied for new credit (checking your own credit score will not affect your score)
• Types of Credit – Having a mix of credit is best, such as a credit card, an auto loan and a line of credit

Your credit score is important, because it affects which lender you can get your mortgage from and what your interest rate on that mortgage will be. Prime lenders, such as major banks, will definitely give you a mortgage if your credit score is above 700, and they will consider applications with credit scores between 600 and 700.

If your score is between 600 and 700, the rest of your application will need to be strong in order to get approved. The lower your score, the greater risk you pose to the lender. To compensate for that risk, some lenders, such as trust companies and private lenders, will charge you a higher interest rate. Some lenders won’t lend you money at all if your credit score is too low.

Here is a table showing which lenders you can get a mortgage from in different credit score range scenarios.

If you have a bruised credit score, or you’ve recently moved to Canada and would like to establish credit, here is a list of things you can do to improve your credit score:

• Make sure to have a least two credit facilities in use at all times. Use each credit facility every month, and pay off the balance.
• Always make your payments on time, and always pay at least the minimum payment. If you can’t make the minimum payment, let your lender know right away, as they may be able to accommodate you by extending your payment due date.
• Do not to use more than 35% of your available credit. For example, if you have a credit card with an available limit of $5,000 and a line of credit with an available limit of $9,200, try not to borrow more than $4,970 ($5,000 + $9,200 x 35% = $4,970) at any given time.
• Establish a long credit history. Try not to cancel your oldest credit card, even if you rarely use it. The longer your credit history is, the better your credit rating will be.
• Limit how frequently you apply for credit. The more times you apply for new credit, the worse it looks to lenders. Note that checking your own credit will not affect your credit score.