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  • Mark Panizzon

Credit Basics: Your Guide to Securing a Mortgage in Canada

Embarking on the journey to homeownership in Canada requires more than just a dream and a down payment. Your credit health plays a pivotal role in determining your eligibility for a mortgage. In this comprehensive blog post, we'll unravel the basics of credit and how it impacts your ability to secure a mortgage in the Canadian real estate market.

  1. Understanding Credit Scores: A. What is a Credit Score?: A credit score is a three-digit number that rates your creditworthiness. B. Credit Score Ranges: FICO scores range from 300 to 850. The higher the score, the more likely you are to get approved for loans and for better rates.

  2. Factors Influencing Your Credit Score: A. Payment History: A credit score includes how all credit accounts are being repaid. Not only does this consist of any late monthly payments, but also items of public record and foreclosures. B. Credit Utilization: A measure of how much of your available credit, on credit cards and/or lines of credit, is being used. It also factors in the number of accounts with balances and the amount paid down on installment loans. Generally, lower credit utilization demonstrates restraint and is viewed as positive. C. Length of Credit History: A credit score not only considers the date that the first account was opened, but also the average age of the accounts on the report. Creditors typically want to see at least two open trades on a credit report, each being used for a minimum of two years. D. Types of Credit in Use: In general, lenders and creditors like to see borrowers manage a variety of credit types. A borrower’s credit score can improve if they have demonstrated the ability to manage several different credit accounts rather than having only instalment loans or only revolving credit.

  3. Checking and Monitoring Your Credit Report: A. Importance of Regular Checks: Checking your credit on a regular basis will keep you informed on who is checking your credit, what your credit habits look like and how lenders view you should you need to borrow money in the future. Knowing this information will provide you with a plan. B. How to Access Your Credit Report: Did you know it is free for borrowers to get a copy of their own credit report? Click here to learn more.

  4. Building and Improving Your Credit: A. Establish a minimum of 2-3 trades with good repayment history for 24 months. – The longer a credit facility is open and active with timely repayment, the better the score can be. B. Ensure trades are varied: credit cards, instalment loans, lines-of-credit and department store cards. –Lack of credit does not equal good credit. C. Illustrate the use of credit on a regular basis and ensure repayment is on time. –Arrange for automatic payments if possible. D. Review statements for accuracy. E. Check credit reports on a regular basis, making the necessary corrections and updates. F. In general, apply for credit only when required. G. When rate shopping, obtain quotes over a two-week period to ensure they are treated as one inquiry.

  5. Credit and Mortgage Approval: a. Minimum Credit Score Requirements: The minimum credit score for obtaining a mortgage varies on the lender, type of transaction and quality of applicants. In general a minimum score of 600 is required for most lenders. However, scores less than 600 often are still ok for alternative lenders. B. Impact of Credit on Interest Rates: The higher the credit score you have, the better the rates you will get.

  6. Working with a Mortgage Broker: As a mortgage broker, we assist clients in the mortgage journey well before their mortgage is ready to close. It often starts at the pre-approval stage, where we do a deep analysis of the entire client profile including credit to determine if they qualify and if not, what needs to be done to qualify in the future.

As you embark on the exciting journey of obtaining a mortgage in Canada, arming yourself with knowledge about credit basics is a crucial step. By understanding how credit scores are calculated, monitoring your credit report, and taking proactive steps to build or improve your credit, you can enhance your chances of turning your homeownership dreams into reality. Remember, a solid credit foundation is not just a key; it's the key to unlocking the door to your new home.

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