Your Credit Score Demystified

When it comes to mortgage borrowing there are several key factors that will determine whether you get approved, how much you get approved for and the mortgage rate.  Among them, your credit score ranks in the top three as a key determining factor.

In Canada, there are two major credit reporting agencies, Equifax Canada and Trans Union. Both have different scoring systems and even within Equifax there is a score they will report to you and a score that we as lenders see, and the two scores are often different.

As you can see in the graphic a score of 670 to 739 is considered GOOD and a score of 800 to 900 is considered EXCELLENT.  In my 29 years as a mortgage broker I have never seen a score over 875 and I have worked with a lot of great, okay, excellent clients.

Credit-reporting agencies and lenders use a mathematical formula to figure out your
credit score. This formula takes into account various factors described in your credit report, such as: your payment history, whether you carry over a balance on your credit card from one month to another, have you missed payments on any of your debts, are there any consumer propoasal or bankruptcy recorded against you, whether a collection agency had to collect an unpaid bill from you, your outstanding debts, the limit on your credit card, whether your spending close to your credit limit, your account history, how long have you had credit, the number of recent inquiries made about your credit report, and the type of credit you are using  whether it be only credit cards, or a mix of credit cards and loans.

These factors do not all have the same weight in determining your credit score. The most important factors are your payment history, whether you have ever declared bankruptcy, and the amount of your outstanding credit balances.

Although other elements such as your mortgage information and any personal inquiries
you have made may also be included in your credit report, they usually do not influence your credit score.

In short, pay your bills on time, and do not use more than 50% of the credit limit on each credit card or line of credit.