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How Your Credit Score Affects Your Mortgage Rate

Rachel Surman Mar 19, 2020

Buying a house and getting a mortgage is likely the most important and expensive decision you’ll make in your life. At Borrowell, we’re all about helping you keep more money in your pocket – and this article will help you do just that. 

A recent study from KPMG found 72% of millennials surveyed say their dream is to own a home – but only half think they’ll ever be able to actually be able to achieve this goal. 

Unfortunately for many, homeownership largely depends on your location. If you’re in one of Canada’s large cities, like Toronto, Vancouver or Montreal, you can expect an expensive downpayment. But interestingly enough, this isn’t swaying hopeful Canadian homeowners and many are doing their best to make it work. 

If you’re ready to make the jump into homeownership, or just trying to sort out of the logistics of it all – good for you. Wherever you are in the process, the important thing is that you’re taking the initiative to plan your future. But do you know how your credit score affects your mortgage rates? When it comes to getting the best mortgage rates your credit score is quite important. That’s why we’ve teamed up with our friends at stnce, a grassroots financial empowerment movement and ever-expanding resource hub. stnce is consistently working to provide you with financial education you can feel comfortable accessing at your own pace on stnce.ca.

Let’s get started with the basics. 

What’s a credit score? 

Your credit score is a 3-digit number between 300-900 (according to the scoring model) that is calculated by the credit bureaus. There are two credit bureaus in Canada – Equifax and TransUnion. Borrowell has a partnership with Equifax to provide you with your Equifax Risk Score 2.0 (ERS) – for free. Your credit score is also an indication of how creditworthy you are or how likely it is you’ll pay banks and other financial institutions back.

Your credit score is made up of the following 6 factors: credit inquiries (10%), credit mix (10%), credit history (15%), credit utilization (30%), payment history (35%), and any derogatory marks (such as collections or a bankruptcy). 

Why does your credit score matter when shopping for a mortgage? 

Your credit score is an evaluation of your creditworthiness in the eyes of banks and lenders. Basically, the higher your score, the better rates you’ll receive, and the more money you’ll save on interest on your mortgage payments. The interest rate you receive on your mortgage matters and even a slightly lower interest rate can have a major impact on what you pay in interest. 

What should my credit score be to get the best mortgage rates? 

Here’s a brief overview of what your credit score looks like to mortgage brokers. 

741 or more: Wow – your credit score is excellent. This is where the best mortgage rates live. 

713 to 740: You have a good credit score. You should receive a very good interest rate on your mortgage and have plenty of options. 

660 to 712: This is considered a fair credit score by lenders. However, once you get to 660, you’ll be entering average credit score territory. 

575 to 659: In the eyes of banks and lenders, this is a below-average credit score. If your credit score is below 640, you might have trouble getting a conventional mortgage from a bank or online lender. Consider working on improving your credit score with the helpful tips below. 

300 to 574: Your credit score is poor and needs improvement but that’s OK. As your credit stands right now, you’d be considered a high-risk borrower and if you’re approved, you might end up paying a lot in interest. You have what it takes to improve your credit score and access better mortgage rates – just be sure to check out the suggestions below. 

Keep in mind that for every 20-point increment that your credit score drops, you’re likely to see small changes in the interest rate you’re offered. Lenders typically adjust the rate they offer each time your credit score moves up or down by 20 points. 

How do you improve your credit score? 

You might be thinking, “Well that’s all fine and dandy – but how do I improve my credit score?” Luckily, we have a few tips up our sleeves to share. 

1. Check your credit score and monitor it 

Checking your credit score is the first step to improving your financial well-being. Getting a handle on your credit score will help you access better products and get the best interest rates. Also, data says that checking your score can actually help you improve it

2. Watch your credit utilization 

The amount of credit you have available is more important than you might think. Often times, we run up balances on our cards and are unaware of the damages it can cause. Credit utilization is the ratio of your credit card balance to your credit limit as listed on your credit report. So if you have a combined credit limit of $10,000, keep your total balance under $3,000.

3. Pay your bills on time 

Set up pre-authorized payments on all of your bills, especially the ones that often report to the bureau (mortgages, student loans, auto loans, and credit cards). These can also include your utilities, cell phone, insurance, etc. Paying your bills on time accounts for 35% of your credit score. 

Finding the best mortgage for you 

Now that you know what your credit score is, what credit score you need to get the best mortgage rates, and how to improve your score – you should be well on your way to getting the best mortgage rate. But how do you find the best mortgage for you? 

There are two different routes you can take when looking for a mortgage. You can go to your big bank and choose from the options they make available, or you can opt for a mortgage broker. A mortgage broker is a licensed professional that will compare mortgages on your behalf from a variety of lenders to help you find the best rates available to you. 

We don’t mean to be biased, but a mortgage broker can save you time and effort because they have access to many different lenders, including the major banks, credit unions, alternative lenders, and private lenders. They can compare lenders and look for the most competitive mortgage rates without being obligated to pick from any singular lender. You can find a licensed mortgage broker near you through Mortgage Professionals Canada.  stnce is a huge advocate for the mortgage broker channel, who they work with on a regular basis to raise the bar to ensure homebuyers like you are getting the best broker experience.

The final word 

If credit scores and mortgage rates seem daunting, they don’t need to be! You have what it takes to improve your credit score and access better mortgage rates. Start by checking your score, working to improve it and then by getting in touch with a mortgage broker with your best interests at heart.


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Borrowell® is a registered trademark of Borrowell Inc. All Rights Reserved. The Equifax credit score is based on Equifax’s proprietary model and may not be the same score used by third parties to determine your credit profile. The score provided to you for educational use is the Equifax Risk Score.


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