Life offers many exciting and memorable milestones, but few are as important as the decision to buy a home.
Depending on where you live, the process can be more difficult than others, but the desire to own a home is a dream many Canadians share. In a survey by CIBC, 65% of millennials reported that they either rent their home or live with relatives. And of that, 94% reported that they plan on buying a home at some point. Before you start house-hunting and building out your home décor Pinterest board, we need to talk about credit scores. Your credit score will have a direct impact on the type of mortgage you can get, so let’s get into it.
Know your number
Previously, we wrote a blog post all about credit scores. You can check it out in detail here. But here’s a brief overview:
A credit score is a three-digit number that can range from 300 to 900 and is a measure of your financial health. Your credit score shows lenders their level of risk if they lend you money. The higher the score, the better – you’ll be more likely to get approval for financial products (at better rates).
If you’re one of the 40% of Carrot members that have never checked your credit score, it’s time to change that. It’s quick, easy, secure and FREE. No better time than the present, so find out your credit score with Borrowell here.
How high does my credit score need to be to get a mortgage in Canada?
I know we said, the higher, the better, but generally speaking, traditional mortgage lenders would like to see your credit score at least 650. If you have a credit score of 741+ – great work! You have an excellent credit score. If you have a good to excellent credit score (690-740), the credit bureau is essentially telling mortgage lenders there’s a low chance you’ll miss a payment since you have a good history of paying your bills on time.
If you have a below average credit score (less than 659), it’s still possible to qualify for a mortgage. You’ll likely be approved by an alternative mortgage lender who will charge higher interest. All the more reason to work to improve your credit score.
Should I improve my credit score before applying for a mortgage?
Improving your credit score is never a bad idea – but it’s especially important if you’re getting ready for a major life purchase. Mortgage lenders will see that you have a good history of making your payments on time and the interest rate they offer you should reflect that.
What can I do to improve my credit score?
Two easy steps…
- Pay your bills on time. This accounts for 35% of your credit score, so it’s very important. Paying your bills on time – every time – shows that you’re financially responsible. Set up preauthorized payments and never miss a payment on your bills.
- Try to keep at least 25% of your credit limit available at all times. The amount of credit you have available is more of a factor than you might think. This is known as credit utilization – the ratio of credit card balance to credit limit – and is listed on your credit report.