Credit 101: Understanding Your Credit Score & How It Affects Your Mortgage

Your credit score, including your credit report, are significant factors in determining whether you're a suitable borrower to lend to. Mortgages are a significant investment and lending risk — lenders must ensure they follow guidelines and protocols to protect not only themselves, but borrowers as well.

There are two credit bureaus which exist in Canada: Equifax and TransUnion. These credit bureaus are responsible for using formulas to compile your credit score based off your financial history and any relevant data.

There are two main complex algorithms these credit bureaus may use when calculating your score:

Algorithms are responsible for the behind-the-scenes work of analyzing a credit score, but there are still some easy-to-understand factors you should be aware of.

Here are the 5 main factors that contribute to the calculation of your credit score:

You may already know your credit score — maybe it's 358, or 612, or even 880! But what do these numbers mean?

Your score is determined to be within a range of 300 to 900 with Equifax, or 300 to 850 with TransUnion. Most credit models follow the same rating scale, with a small variance in range for each category.

The average credit carrier has a score designated somewhere between 650–725. If you've found yourself within this category, or even better in the Excellent category, great job! If not, there are avenues you can take to increase your score and borrowing power.

As discussed above, it's important to pay attention to what the lenders are assessing regarding your credit. Here are some practical steps you can take:

Reach out to a licensed mortgage professional for a chat about your credit — a knowledgeable broker can assist you with mortgage solutions so that your credit report positions you well with lenders.