As a prospective homebuyer, a hugely influential factor regarding your potential mortgage approval is your credit score. A credit score is a numerical rating given to individual consumers, which is calculated based on credit and payment histories. They are used to help determine the measure of an applicant’s credit risk, and are most often referenced by credit-giving companies or institutions like:
Any time you apply for new credit, a loan, or a mortgage, there is a good chance your rating will be checked.
Credit scores in Canada range from 300 to 900, and lenders or brokers will use your score to evaluate whether to decline or approve your mortgage application, and to determine the interest rate on your loan. If your credit score is between 300 and 620, you:
If your rating is between 680 and 900, you:
Different loan-to-value (LTV) ratios demand varying credit scores, so you might still be eligible for a loan even if you have a poor credit rating. If you are applying for a mortgage that has an LTV ratio of less than 60%, lenders do not require a minimum credit score. But for higher LTV ratios, there are minimum scores you need in order to be eligible for the loans, and they are:
Your credit score is calculated using what is known as the FICO system, a complex formula that weighs factors like payment history, the amounts of the debts you have owed, the length of your credit history, your recent credit, and the types of credit you have had.
You can look into your own credit bureau by contacting any of Canada’s three reporting agencies: TransUnion, Equifax, or Experian. It is recommended that you obtain credit reports from at least two of the agencies, and ensure the information is accurate. A poor credit score could cost you thousands of dollars in higher interest rates, so make sure the information contained within is correct.
No matter what your credit score, there are independent mortgage brokers out there who deal with lenders that approve high-risk loans for people who have poor credit, or little to no credit history at all.
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