How Credit Scores Impact Mortgage Rates

How Your Credit Score Affects Your Mortgage

Credit score plays a major role in determining your mortgage eligibility, interest rates, and overall approval process. Borrowers with good to excellent credit scores typically receive lower interest rates, better terms, and a smoother application process. However, even if your credit isn’t perfect, there are still ways to secure a mortgage. Let’s break down how credit scores impact mortgage rates and what options are available for all credit situations.

How Does My Credit Score Affect Mortgage Rates?

Lenders assess risk when issuing mortgages, and your credit score is one of the biggest factors they consider. A higher credit score signals to lenders that financial obligations are managed well, making you a lower-risk borrower. As a result, more access to lender options, lower rates and more favorable terms to borrowers with strong credit histories.

Think of it this way: just as you wouldn’t lend money to a stranger without knowing their financial background, lenders want reassurance that mortgage payments will be made on time. A high credit score and good repayment history provides that confidence, while a lower score may result in higher interest rates or additional lending conditions.

What Else Do Lenders Consider When Reviewing a Mortgage Application?

Beyond the credit score, lenders evaluate several other factors to determine whether you qualify for a mortgage:

• Debt-to-Income Ratio: This compares your total debt payments to your monthly income. A lower ratio indicates that additional mortgage payments can comfortably be managed.

• Down Payment: A larger down payment reduces the amount you need to borrow and lowers the lender’s risk. In Canada, the size of down payment also determines whether mortgage default insurance (such as CMHC) is required or not.

• Employment History & Income Stability: Lenders look for a steady job history and reliable income. A consistent employment record reassures them that you have the financial stability to make regular mortgage payments.

  
  

Why Good Credit Matters

While lenders consider multiple factors, your credit score can significantly impact the mortgage rates and terms you’re offered. A strong credit score can mean the difference between approval and rejection, and it also determines whether you qualify as an "A borrower" (preferred rates from traditional lenders) or a "B borrower" (alternative lenders with higher rates).

What’s a Good Credit Score in Canada?

According to Equifax, Canadian credit scores are classified as follows:

• 660 – 724: Good

• 725 – 759: Very Good

• 760 and above: Excellent

What Credit Score Do You Need to Get a Mortgage?

While some lenders approve mortgages for borrowers with credit scores as low as 600, a score of 680 or higher is typically required to access the best interest rates and mortgage products.

How to Check Your Credit Score

The easiest way to check your credit score is by requesting your credit report from Equifax or TransUnion. This won’t impact your credit score and will provide valuable information about your credit.

When reviewing your credit report, be sure to check for any errors and request corrections if needed.

How to Improve Your Credit Score

If your credit score needs some work, don’t worry—there are simple steps you can take to improve it. Ideally, you should start at least a few months before applying for a mortgage:

✔ Make all payments on time – Even one missed payment can impact your score.

✔ Keep credit utilization low – Aim to use no more than 30% of your total available credit, avoid going overlimit and high utilization.

✔ Check your credit report regularly – report any errors immediately to ensure its corrected.

✔ Limit new credit applications 

✔ Keep old credit accounts open – The longer your credit history, the better.

Can You Get a Mortgage with Bad Credit?

Yes, it is possible to get a mortgage with less than perfect credit score! While a lower credit score may mean less lender options available, it doesn’t make homeownership impossible. Some ways to improve your approval chances include:

• Providing a larger down payment – This lowers the lender’s risk.

• Having a co-signer or guarantor – A financially stable co-signer can strengthen your application.

• Exploring alternative lenders – Private or alternative lenders may offer solutions.

  
  

Getting a Mortgage

Having a strong credit score can help secure the best mortgage rates, but even if your credit isn’t perfect, there are still options. It is always best to connect early and create a plan if needed.

As an experienced mortgage broker, I can help you navigate the mortgage process and find a solution that fits your financial situation.

Ready to explore your mortgage options?

Contact me today, and let’s find the best path to homeownership for you!

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