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Content last updated: July 3, 2020
One of the things lenders consider when deciding whether or not you are a good candidate for a mortgage loan is your credit score. Your credit score is a measure of your financial health, and shows lenders their level of risk if they lend you money.
Your credit score is a number between 300 and 900. A credit score above 700 proves you manage your credit well, meaning a lender should feel comfortable letting you borrow money. A lower credit score shows that you have mismanaged your credit, making you more of a risk to the lender, which means you may be required to pay a higher mortgage rate.
Your credit score is built and tracked based on information sent to credit-reporting agencies – more commonly known as credit bureaus – by companies that lend you money or issue you credit cards, such as banks, retailers, credit unions and other financial institutions. There are two credit-reporting agencies in Canada: Equifax Canada and TransUnion. Upon request, both agencies will send you one free copy of your credit report each year, as well as allow you to look up your credit score at anytime for a small fee. It’s a good idea to check your credit report annually, to make sure there are no mistakes on it.
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Each credit-reporting agency uses their own proprietary formula to calculate credit scores. Your credit score is calculated based on the following factors:
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. And 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.
Description | Credit Score1 | Mortgage Rate2 | Example lender | |
---|---|---|---|---|
Major Banks - Prime Lenders | Financial institutions including the big banks with more conservative lending requirements | 600-900 | 3.49% | TD Canada Trust |
Trust Companies - Bad Credit Institutional Lenders | Financial institutions catering to those with bad credit | 550-700 | 5.49% | Home Trust |
Private Lenders | Private companies or individuals who loan funds by real estate properties | Less than 600 | 10-18% | Wealthbridge |
Do you have bad credit? Find a broker today who specializes in bad credit mortgages.
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: