Credit Scores and Your Home Mortgage

When it comes to mortgages, the higher your Credit Score, the lower your rate of interest. Conversely, the lower your credit score, the higher your rate of interest. These days almost anyone can obtain a mortgage but the key, for those with a low Credit Score, will be the size of the downpayment. If you have a sufficient downpayment, you can reduce the risk to the lender providing you with the mortgage. Statistics show that default rates on mortgages decline as the downpayment increases.

• Minimum credit score to qualify for a mortgage is 500
• No down payment mortgage requires a credit score of at least 680
• Having no credit is viewed as having bad credit.

See how much interest you will pay and how big your monthly payments will be using credit score mortgage calculator. (examples only)

Credit Score Factors That Affect Your Mortgage Qualification

Credit Score

Your credit score is calculated using 5 different factors (check diagram above). Percentage shows how important each category is for home mortgage qualification. Read detailed description of each category below to learn how credit affects your home mortgage qualification and what you can do about it.

Payment History - About 35% of your credit score is based on your payment history

• Slow / Late Payments - being late on credit card payments, student loans and other financial obligations lowers your Credit Score. Paying your bills late or not in full are also bad for your Credit Score. But it's better to make a partial payment than to make no payment at all. Paying on time automatically increases your Credit Score. To obtain the most competitive mortgage interest rates, stay up-to-date on all your financial obligations.
• Delinquency - Missing even one payment is considered to be delinquent. Delinquency on credit cards, loans and regular bills negatively affects your credit score. Pay all loans, credit cards and bills on time in order to keep a high score and obtain lower rates from mortgage lenders.
• Collections - once collections are on your Credit Report, they stay there for a period of 7 years. Mortgages can still be provided for consumers that have debts in collections, but most lenders will require that you pay them before obtaining a mortgage.
• Number of Past Due Payments - The more payments you miss the worse the consequences to your credit score. Lenders prefer to see clean payment history and no past due payments on credit reports.
• Bankruptcy - Bankruptcies remain on your credit profile for 7 years. Mortgages can still be provided for consumers that have been in bankruptcy as long as the bankruptcy has been discharged. Interest rates are usually higher for consumers in these situations.
• Mortgage Foreclosure - Foreclosures take place when borrowers are delinquent on their mortgage obligations. The lender will usually provide time for you to catch up on mortgage but will not let you make it a regular habit.

Credit score agencies track payments made on time, which increase your credit score.

Amounts Owed:About 30% of your total credit score is based on the amounts you owe

This portion of your credit report is tracking the total amount of your debts including mortgages, credit cards, car loans, student loans and other debts. It also tracks the companies you owe money to, for how long, and how much. Keep your credit card balances between 4% - 12% of the available balance to increase your credit score. If possible, pay credits cards in full and only use them when you have the money to pay them back right away.

Length of Credit History - Approximately 15% of your credit score is based on the length of your credit history

This section of your Credit Report tracks the age of each credit account and the account activity until the present day. Try not to close old credit cards that you still use because they have more impact on your Credit Score than ones that were opened recently. You should, however, close any cards that you do not use in order to prevent fraud.

New Credit - Up to 10% of your credit can be damaged through new inquiries

This section of your Credit Report tracks how many times you have applied for credit. Whether it's for a credit card, car loan, cellphone or mortgage, your credit is checked for all of them. Every time your credit report is accessed by anyone other than yourself, there is damage done to your credit score. Utilizing experienced, knowledgeable Mortgage Brokers, your credit score is only accessed once (with your permission) and that information is shared with all the banks and lenders to salvage your Credit Score. You should only apply for credit if you really need it.

Types of Credit Used - About 10% of your credit score is based on the different types of credit you use

It is always better to utilize a mixture of credit products. Having a line of credit, personal loan and credit card mixture is ideal for your credit rating. It shows that you can pay revolving credit (re-occurring monthly obligations) and control the access you have to your available credit.

Improving your credit score

Improving your Credit Score takes time, patience and most of all, diligence. See our page on tips to improve your credit score and obtain a lower interest rate.

What Information Is On My Credit Report?

In addition to your name, address, Social Insurance Number (SIN), date of birth and employment, Equifax and TransUnion keep track of all credit cards, credit lines, home equity lines of credit, auto loans and student loans. They track information on each trade line such as the date opened, credit limit, loan amount, account balance and payment history. A credit report also tracks the number of requests you've made for credit with all the companies that ever accessed your credit. Collections, bankruptcies, judgments, lawsuits and foreclosures are also on your Credit Report and tend to stay there for a period of 7 years.

What is a FICO Score?

A FICO Score is the American credit rating system created by Fair Isaac Corporation. In Canada the Credit Rating system for consumers is called a Beacon Score - the Canadian equivalent of a FICO score. A Beacon Score is most commonly referred to as a "Credit Score" or "Credit Rating."