To put it simply, a credit score of 680+ is required to qualify for the best mortgage rates in Canada in 2021. But trust us, there’s a lot more to know about credit scores and how they affect your mortgage rates and options. Nearly half of all Canadians (47%) don’t even know where to check their credit scores! Whether you’re getting your updated credit score sent to you every month, or you’re not even sure what your score is, there’s a lot to learn about what they are and how they’ll affect your mortgage experience.
Why Does The Score Matter?
Your credit score is a fast pass to great mortgage rates and excellent terms. It’s essentially proof that you can be trusted to make payments if you’re given a loan of any kind. A high credit score means you’ll unlock access to the best mortgage rates on the market and have more flexibility when it comes to the terms and conditions associated with a mortgage. It also means you could save upward of six figures worth of interest over the course of your lifetime!
Since credit scores have become an integral part of our financial lives, it’s more important than ever to keep track of yours and understand how your actions affect the numbers.
How Do I Know If My Score Is Good?
In Canada, your credit score ranges from 300 – 900, with 900 being a perfect score. If you have a score between 780 – 900, that’s excellent. If your score is between 700 – 780, that’s considered a strong score and you shouldn’t have too much trouble getting approved with a great rate. When you start hitting 625 and below, your score is getting low and you’ll start finding it more and more difficult to qualify for the best mortgage rates.
What If I Have Bad Credit?
There are a few different things you can do if you’re worried about your bad credit/low credit score:
Choose Your Mortgage Lender Wisely
If your score falls below 600, you’re going to have a very difficult time getting approved through Canada’s major banks. So instead, you’ll more than likely want to work with an alternative lender. These lenders are definitely more lenient, but you’ll likely have to make a higher down payment (think 20 – 35%) and deal with higher interest rates, so approach with caution.
Make A Larger Down Payment
If you need another way to demonstrate your financial stability to lenders, consider making a larger down payment of 20% or more to show that you have a sizeable income and budgeting prowess.
Look Into A Co-Signer Or Joint Mortgage
If the first two options aren’t feasible, consider seeking out a co-signer. Essentially this person promises to make your mortgage payments if you can’t. Having a co-signer makes it easier to apply for mortgages from traditional lenders since they’ll be factoring in the co-signer’s credit and income.
Work On Improving Your Current Credit Score
What’s important to remember is that credit scores are always changing, so don’t get too upset if you find yours is currently low. There are lots of ways for you to improve it on your own. Get serious about paying bills on time, stick to a max usage of 30% of your credit limit and resist the urge to apply for store credit cards. Committing to these consistent changes in your behaviour will increase your credit score in a few months.
My Credit Score Is Under Control, Now What?
While your credit score is definitely the main factor lenders will take into consideration when you apply for a mortgage, it’s not the only one. Other factors could include:
- Your income
- Your employment (salaried vs. hourly wage vs. self-employed)
- Your payment history
- Your financial history
- How much you want to borrow
- The property itself
Mortgage lenders are essentially looking at the monthly living costs of your potential new home and your current sources of debt. Can you make the necessary payments regularly or will your debt hold you back? It’s important to note that you don’t have to be perfect, but if you’re strong in the areas that matter most to lenders, it can help make the mortgage approval process much smoother.
Credit scores have a huge impact on what mortgage rates you qualify for and your overall approval process. If you haven’t already, you need to learn more about your personal credit score. If you have the luxury to hold off on buying a home in the short term, take some time to work on repairing and improving your credit score before you start seeking out preapprovals so you can feel confident that you’re getting the best rates possible.
Want to learn more about the importance of credit scores or how to navigate the mortgage process smoothly? Contact us to learn more about how we can help!