Obtaining a low mortgage rate in Toronto requires a great broker and a good credit score. As a leading mortgage brokerage in Ontario, Northwood Mortgage often receives questions about how credit scores are calculated and what they mean.
Here, we’ll take a closer look at your credit score, how it’s calculated, and why it impacts a low mortgage rate in Toronto.
What is your credit score?
Your credit score is a number between 300 to 900. It tells lenders whether there is financial risk involved when providing a:
- Credit card
- Rental unit
- Rental vehicle
Your credit score helps creditors ensure you will pay your bills on time and pay your debts off as promised. You want your credit score to remain high for a low mortgage rate in Toronto.
A good credit score in Canada is between 660 and 724. The higher your credit rating, the better your mortgage rate could be, and the better chance you are of being approved.
What goes into a credit score calculation in Toronto?
Credit scoring agencies tabulate credit scores. In Canada, the top credit scoring agencies are Equifax and TransUnion. When determining your score, they measure factors such as:
- How much credit you have used compared to your current available credit.
- Late payments and timely payments.
- How long you have been borrowing.
- The number of credit inquiries (everytime you apply for a new credit card or loan, a credit inquiry is created).
- Whether you have claimed bankruptcy in the last seven years.
You can increase your credit score by improving each of these points.
Breaking Down Credit Score Calculations
The majority of your score is based on payment history. This includes whether you have repaid past credit, made payments for rent and credit cards on time, and missed any payments.
Your payment history determines approximately 35% of your credit score.
After payment history, credit scoring agencies consider how much of your current credit limit is used. If you have $3,000 available on a credit card and used $2,900, this reflects poorly on your score. Generally, you want to keep credit usage below 30%.
Credit history and public records such as bankruptcy and credit inquiries are less impactful on your credit score than payments and usage but are still important factors. Each accounts for 10% to 15% of your score.
Applying for a Mortgage
To obtain a low mortgage rate in Toronto, your credit score should be in good standing and maintained for six months or more.
When you apply for your mortgage, the bank or financial lender will look at your credit score, running an inquiry to check these numbers.
Contact Northwood Mortgage Today
Interested in learning more about getting a low mortgage in Toronto? Northwood Mortgage brokers can help.