Credit Score and Mortgage Rates

The Credit Score Ranges That Matter

In Canada, credit scores range from 300 to 900, with most people falling somewhere between 600 and 750. But not all scores are created equal in the eyes of mortgage lenders. Here's how they typically view different ranges:

Excellent (760+)

This is the sweet spot. Lenders see you as a low-risk borrower and compete for your business. You'll qualify for the best rates available—often 0.5% to 1% lower than average rates. On a $500,000 mortgage, that could mean saving $150-$300 per month.

Good (700-759)

You're still in solid territory. Most lenders will offer you competitive rates, though you might not see the absolute rock-bottom numbers. The difference here is usually around 0.25% to 0.5% higher than excellent credit rates.

Fair (650-699)

Things get trickier here. Traditional lenders may still work with you, but expect higher rates—sometimes 0.5% to 1.5% above prime rates. You might also face more scrutiny during the approval process and need a larger down payment.

Poor (Below 650)

Major banks often decline applications in this range. You'll likely need to work with alternative lenders who specialize in higher-risk mortgages, with rates that can be 2% to 4% higher than prime. The good news? It's temporary if you take steps to rebuild.

Why Lenders Care So Much About Your Score

From a lender's perspective, your credit score is a statistical prediction of how likely you are to repay borrowed money. It's based on your financial behavior over time—payment history, credit utilization, length of credit history, and more.

When you apply for a mortgage, lenders are making a 25-year bet on you. A higher credit score tells them you've consistently managed debt responsibly, which reduces their risk. Lower risk means they can offer you better rates because they're more confident they'll get their money back.

In practical terms, someone with a 780 credit score applying for a $400,000 mortgage at 4.5% will pay about $2,030 per month. Someone with a 650 score getting a rate of 6.0% will pay $2,398—that's an extra $368 every month, or $132,480 over 30 years.

What Actually Impacts Your Credit Score?

Understanding the components can help you focus your improvement efforts where they'll have the most impact:

Payment History

35%

This is the big one. Late payments, collections, and bankruptcies have major negative impacts. Even one 30-day late payment can drop your score by 50-100 points.

Credit Utilization

30%

How much of your available credit you're using. Keeping balances below 30% of your limits is good; below 10% is excellent.

Length of Credit History

15%

Longer credit history is better. That old credit card you barely use? Keep it open—closing it could hurt your score.

New Credit

10%

Too many recent credit applications signal financial stress. Each hard inquiry can drop your score by 5-10 points temporarily.

Credit Mix

10%

Having different types of credit (credit cards, car loans, lines of credit) shows you can manage various obligations.

Practical Steps to Improve Your Score Before Applying

The good news is that credit scores aren't permanent. With focused effort, you can see meaningful improvements in as little as 3-6 months. Here's what actually works:

Set Up Automatic Payments

Since payment history is 35% of your score, this is non-negotiable. Even if you can only afford minimum payments right now, make sure they're on time, every time. Set up automatic payments for at least the minimum amount on every credit account.

Pro tip: Schedule them for a few days after payday so you know the money's there. One missed payment can take 6-12 months to recover from.

Pay Down High Balances Strategically

If you're carrying balances on multiple cards, focus on getting each one below 30% of its limit before paying off any single card entirely. A $5,000 balance on a $10,000 limit card (50% utilization) hurts more than a $2,900 balance on the same card (29% utilization).

If possible, ask for credit limit increases on cards you've had for a while—but don't use that new available credit. This instantly improves your utilization ratio.

Dispute Errors on Your Credit Report

About 20% of Canadians have errors on their credit reports. Get free copies from Equifax and TransUnion, then carefully review every entry. Look for accounts that aren't yours, payments marked late that you paid on time, or old debts that should have dropped off.

Disputing errors is free and can be done online. If the credit bureau can't verify the information within 30 days, they must remove it—potentially giving your score an instant boost.

Stop Applying for New Credit

In the 6 months before you plan to apply for a mortgage, avoid opening new credit cards, financing furniture, or leasing vehicles. Each application creates a "hard inquiry" that temporarily lowers your score.

The exception: Shopping for a mortgage itself. Multiple mortgage inquiries within a 14-day period count as a single inquiry, so shop around without worry.

Become an Authorized User

If you have a family member with excellent credit and a long-standing credit card, ask them to add you as an authorized user. You can benefit from their positive payment history without even using the card.

Just make sure they have a spotless payment record—their late payments would hurt you too.

Consider a Secured Credit Card

If you're rebuilding from a low score, a secured credit card (where you put down a deposit) can help establish positive payment history. Use it for small purchases like gas or groceries, pay it off in full each month, and watch your score climb over 6-12 months.

Realistic Timeline for Score Improvements

30-90 Days:

Paying down credit card balances and fixing errors can show results quickly. Expect 10-30 point improvements if you address high utilization.

3-6 Months:

Consistent on-time payments and strategic balance reductions can yield 40-80 point improvements, potentially moving you up a full tier.

12+ Months:

Major credit rebuilding after bankruptcy or collections takes time, but following these principles can get you from poor to fair or fair to good territory.

Common Credit Score Myths (Debunked)

❌ Myth: Checking your own credit hurts your score

Reality: Soft inquiries (when you check your own score) don't affect it at all. Check as often as you want through free services.

❌ Myth: Closing old credit cards helps your score

Reality: Closing cards reduces your available credit and shortens your credit history, both of which can lower your score. Keep old cards open, even if you don't use them.

❌ Myth: Paying off collections removes them from your report

Reality: Paid collections can stay on your report for up to 7 years, though their impact diminishes over time. The notation changes from "unpaid" to "paid," which helps, but the entry remains.

❌ Myth: You need to carry a balance to build credit

Reality: You can pay your credit card in full every month and still build excellent credit. In fact, carrying a balance just costs you interest without any benefit to your score.

The Bottom Line

Your credit score is one of the few factors in mortgage lending that you have direct control over. While you can't change your income overnight or instantly save a larger down payment, you can make measurable improvements to your credit score with consistent effort.

Start by pulling your credit reports from both Equifax and TransUnion, identify your weak spots, and create a 6-month action plan. Even moving from "good" to "excellent" credit can save you thousands per year in mortgage interest—money that stays in your pocket instead of going to the bank.

Ready to Discuss Your Mortgage Options?

Whether you're working on improving your credit score or ready to apply, let's talk about your mortgage goals and find the best path forward.

How Your Credit Score Affects Your Mortgage Rate (And How to Improve It)