What to know about your credit score and mortgages

Improve your credit score

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The difference between excellent credit and poor credit could be the difference between working with a top-tier lender at a competitive rate and having to turn to an alternative lender with significantly higher monthly payments.

Your credit score plays a huge role in determining the kind of mortgage you can qualify for—and at what interest rate.

Many Canadians are never taught how credit really works, and a lack of basic financial knowledge can lead to costly consequences. In fact, the difference between excellent credit and poor credit could be the difference between working with a top-tier lender at a competitive rate and having to turn to an alternative lender with significantly higher monthly payments.

What Is a credit score?

Your credit score, often referred to as your FICO score, is a three-digit number that lenders use to assess how likely you are to repay debt on time. Scores range from 300 to 900, with anything in the mid-to-high 600s generally considered good. A score above 720 is excellent, while a score below 620 can make it difficult to qualify for a mortgage from a traditional "A" lender.

What affects your credit score?

Understanding how your score is calculated can help you avoid common pitfalls. Here’s the breakdown:

• 35% – Payment history: Late payments, collections, bankruptcies or judgments hurt your score the most.

• 30% – Amounts owed: High balances relative to your credit limits can bring your score down.

• 15% – Length of credit history: The longer your accounts have been open, the better.

• 10% – Credit mix: Having a variety of credit types—like credit cards, installment loans, or lines of credit—can help.

• 10% – New credit inquiries: Too many credit checks in a short period of time may lower your score.

Common credit mistakes and how to avoid them

Many borrowers unknowingly damage their credit, even when they think they’re doing everything right. Here are some frequent missteps:

• Chronic late payments: Even small bills like your cell phone or Internet bill can negatively impact your score if they’re paid late.

• Maxing out credit cards: Try to keep balances below 50% of your credit limit. Even if you pay your card off monthly, high utilization can still hurt your score if the statement is reported before payment.

• Applying for too much credit: Avoid applying for new credit cards or loans unless necessary. Each inquiry can shave points off your score—and multiple inquiries in a short time can be a red flag for lenders.

Proactive credit management tips

One of the smartest financial habits you can adopt is regularly checking your own credit report. You’re entitled to a free report from Canada’s major credit bureaus (Equifax and TransUnion), and reviewing it every six months helps you catch errors or outdated information early. If you find a mistake, initiate a correction right away—it can take weeks or even months to update.

Need to rebuild? There's a way forward

If your credit needs work, there are strategies to improve it. One option is to consolidate high-interest debt using a short-term second mortgage or line of credit. This can simplify your payments, reduce your overall interest, and clean up your credit profile. After a few months of consistent payments, your improved standing will start reflecting on your credit report and you’ll be back in a position to qualify for better rates and terms.

Whether you're preparing to buy your first home or renewing an existing mortgage, strong credit is your ticket to better financing. Improving your score isn’t about quick fixes, it’s about understanding the system and using it to your advantage.

Let’s make a plan

Moving from bruised credit to "A" credit is absolutely possible. It just takes time, patience and the right guidance. If you're unsure where to start or need help creating a strategy, I'm here to help.

Reach out to me at [email protected]. Let’s build a plan to improve your credit and position you for the best mortgage options available.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.