Your Credit Score
A Closer Look at Your Credit and Credit Score
Your credit standing plays a crucial role in the mortgage application process. Each lender has a minimum credit score requirement, which may differ between large financial institutions and alternative lenders. Understanding this distinction is important, as your credit score directly impacts how lenders assess your ability to make timely payments.
A strong credit score can unlock additional benefits, helping you reach your mortgage goals more effectively:
Better rates on both insured and conventional mortgages
More lender and product options, allowing you to find the best fit and potential savings
Higher likelihood of mortgage approval with your lender of choice, the possibility of qualifying for a larger amount (depending on other factors like income), or even securing exceptions based on your unique situation.
What is a Credit Score?
Your credit score is essentially a snapshot of your financial health, and it’s calculated by two major credit bureaus here in Canada—Equifax and TransUnion. At Brokers for Life we use Equifax but note a lot of the mortgage insurers, do look at both.
This score gives lenders an idea of how reliable you are when it comes to managing debt. It takes into account things like your current debts, payment history, and how often you make payments on time. All of this information helps banks and other lenders assess whether you’re a low-risk borrower, making it easier for them to decide whether or not to approve you for a loan.
How is Your Credit Score Calculated?
Both Equifax and TransUnion use a scoring system called FICO or Pinnacle to calculate your score. These formulas look at the data in your credit report and come up with a score between 300 and 900:
- A lower score means you’re considered a higher credit risk.
- A score between 660 and 900 is considered good, very good, or excellent.
- If your score is 680 or higher, you’re in a strong position to secure better mortgage rates and terms.
Which Credit Score Do Mortgage Lenders Use?
When you check your score through a credit bureau, you’re most likely seeing your Pinnacle score. But mortgage lenders actually use a FICO score to assess your mortgage application. This score might be a little lower, as it’s calculated differently, but it’s nothing to worry about!
A lower FICO score doesn’t mean you can’t get approved for a mortgage, but it could impact the terms or how close you are to the approval threshold. That’s why I’m here to help you understand your options and make sure you’re set up for success.
When it comes to your credit, some things are in your control — and some aren’t.
In your control
- Understanding your credit report: Knowing what’s on your credit file helps you see how it might impact your mortgage application.
- Staying on top of your budget: Making sure you pay bills on time is a key factor in keeping your credit score healthy.
- Managing changes in income: If your income is interrupted, working with a mortgage broker, lender, or credit advisor can help find a solution.
- Fixing errors on your credit report: If you spot a mistake, it’s important to get it corrected as soon as possible.
- Repairing your credit: If your credit needs a little TLC, taking immediate action can help get you back on track.
- Communicating with your mortgage broker: Be open about the state of your credit and any challenges you might be facing. We’re here to help!
Out of your control
- How credit bureaus calculate your score: The process is in the hands of Equifax and TransUnion, so the way your score is calculated is not something you can directly influence.
- The minimum credit score for approval: Each lender has their own requirements, and the score they use might vary. However, other factors in your application—like your income and debt levels—could still work in your favor.
- How quickly changes appear on your credit report: Depending on the nature of the change, it can take anywhere from 30 days to a few months for credit bureaus to update your file.
- Your options if your score is too low: If your score is below the required threshold, it might limit your options for mortgage approval. However, don’t worry—there are always steps you can take to improve your credit over time, and we can revisit things when you’re ready.
What Can You Do to Build or Improve Your Credit Score?
Improving your credit score takes time and patience, but there are some key steps you can take that will help you get there. Here’s how:
- Pay your bills on time: Delinquent payments or collections can really hurt your score. Stay on top of your payments to keep things in good standing.
- Keep credit card balances low: Try to avoid carrying high balances on your credit cards or other revolving credit. High debt can drag down your score. Usually stay at 75% or lower of the available limit
- Be mindful when opening new credit accounts: Only apply for new credit when you truly need it. Opening accounts just to diversify your credit mix probably won’t have much of an impact on your score.
- Pay down debt instead of moving it around: Transferring balances doesn’t reduce the amount you owe. Also, avoid closing unused credit cards as a quick fix—this can actually hurt your score in the long run by reducing your available credit.
- Review your credit report regularly: Mistakes happen! Checking your credit report won’t affect your score, and if you spot any errors, be sure to contact the credit reporting agency and your lender to get it fixed.
Taking these steps will put you on the right path to improving your credit score over time. If you need help navigating the process, I’m here to guide you every step of the way!
When do we pull your credit?
A hard check (that records a minor and temporary effect on your credit score) is needed for your mortgage pre-approval — a pre-qualify doesn’t require one. It allows us to shop lenders for your best rate and product — and to hold your rate for up to 120 days (depending on the lender). We don’t access your credit until you provide consent!”
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