Unless you’ve been living among the wolves, as a Canadian, you’re well aware that prices have gone up on just about everything. And with higher interest rates, qualifying for a new mortgage or switching lenders can be that much harder.
It’s more important than ever to keep tabs on your credit score for an upcoming renewal or to buy a new home. Lenders are tightening their rules against economic volatility — and your credit has the power to keep you in the company of more lender and product choices, and better rates (that can help you save more).
Your credit score is more than just a number
A reflection of your financial health, your score indicates your ability to pay previous bills and debt on time. When it comes to securing a mortgage, a lender uses it as a measure to help qualify you and determine what product and rate might be offered.
The score you see on your credit app is not the one mortgage lenders use
In your credit app or account, the number you see is your Pinnacle score (formerly Beacon). Mortgage lenders, however, use your FICO score, which is calculated differently.
The difference doesn't (necessarily) spell trouble for your mortgage application — it’s likely not that far off. But it’s a good thing to know, especially if your mortgage broker or lender gives you a number and you think it’s wrong (it’s not).
Why do mortgage lenders care about your credit?
They lend you money for a home, and naturally, they want to know the potential to receive their money back. If your score is in their ‘good’ range, it tells them you’re a lower risk for borrowing (of course, they consider other details, such as your income source).
So, what does good credit look like?
The anatomy of a credit score
Your FICO or Pinnacle credit score ranges from 300 to 900 and is compiled by two main credit bureaus in Canada: Equifax and TransUnion. Your number is a culmination of your financial behaviours, including how timely your bills are paid, your outstanding debts, and the length of your credit history.
A score between 660 and 900 is generally considered good credit, with 700 or above placing you in a favourable position with a lender. On the other hand, a much lower score can indicate higher risk and may interfere with approval through traditional lenders who want all those boxes ticked before they lend.
Crunching the numbers
Your credit score isn't a random number. Here’s a look at how it’s tallied (depending on the bureau):
- Past performance (35%): Timely payments and fewer financial hiccups (like liens or collections) can boost your score.
- Outstanding debt/credit utilization (30%): Low balances across multiple cards are better than maxing out a few.
- Credit history (15%): A longer history of good credit works in your favour.
- Types of credit in use (10%): Traditional bank accounts are often given more weight than finance company accounts.
- Inquiries (10%): Several hard credit checks in a short time can be a red flag (an expert mortgage broker can often check with many lenders on your behalf based on one inquiry).
Does it cost money to monitor your credit?
Equifax and TransUnion offer paid subscriptions for continuous monitoring to help protect against identity theft and anytime-access to your score and file. But they’re also required to allow you to check your credit score for free through an online process.
An occasional credit check-up can help you spot inaccuracies to address (by filing a dispute) or find areas of improvement. For example, maybe you didn’t realize that missing that one bill here and there was denting your score.
Improving your credit
If your score isn't where you'd like it to be, don't despair. Taking action can improve it in a matter of weeks or keep it from going lower:
- Pay bills and minimum amounts (at the least) on time
- Clear any past-due amounts
- Keep credit card or revolving credit balances low (within 60% of limit)
- Don’t open unnecessary credit accounts thinking it will bump up your score
- Regularly check your credit report for errors
If you're overwhelmed, consider seeking help from an experienced mortgage broker or a financial advisor. Consolidating debt under one mortgage payment through a refinance can also help you get back on the credit track.
Your credit score doesn’t have to be perfect to get a mortgage
There are many lender and product options available to you for mortgage approval. Using a highly trained mortgage broker can help you find the best rate and mortgage fit to save money, time and stress.
It’s a jungle out there — get expert advice to keep your mortgage goals on track
Just like a flute to charm snakes, your credit score is a vital tool when venturing into the mortgage jungle. Taking steps to maintain or improve credit can position you to save a lot more, or stress less when it’s your time to buy or renew.
At True North Mortgage, our expert brokers are always here to help, guiding you every step of the way. With over 13,000 5-star reviews and counting, their highly trained brokers help to clear your (mortgage) path to owning a home with a more civilized budget.
Fast, expert mortgage advice (in your preferred language) can make the difference, saving you money and time. Contact Canada's No. 1 Mortgage Broker today.