When applying for a mortgage, lenders use your credit score as a factor to evaluate the strength of your application, determine whether or not you qualify and which rate class you fall in. Along with other important factors, your credit score is a major indication of your level of risk when it comes to your mortgage. For this reason, home buyers are often encouraged to get their credit score in a favourable range so that they can secure the best mortgage and enter the process with more advantage and ease.

But first, what’s considered to be a high credit score?

A credit score is a number that’s given to you based on the repayment history of your credit cards, line of credit, auto loans and/or student loans. It represents the level of risk you pose to lenders at a specific point in time and is one of the main factors that determines your eligibility for a mortgage loan. A strong credit score is usually rated 680 or higher. However, credit score requirements also vary between lenders, which is why it’s important to do your research and understand how your credit score influences which lender you’ll qualify with. For example, Prime A lenders generally favour home buyers with strong credit scores (680 and above), but they will at times allow credit scores as low as 600.

How does it help you get a lower mortgage rate?

Essentially, the higher your credit score the less risk you pose and the less interest you’ll be charged. If a home buyer has great credit, it's likely because they've made responsible financial decisions such as paying their bills on time and keeping debts low. This gives lenders more confidence in a buyer’s financial stability and verifies that they’ll be able to repay their mortgage in full and on time. Therefore, lenders are more willing to give these borrowers a lower mortgage rate.

Tip: When comparing the difference in mortgage rates, the impact it has on your savings may initially seem small. For example, a mortgage rate of 2.89% compared to 3% may not sound like a big deal, but if you’re applying for a 25-year fixed rate mortgage, that little difference can really add up. In some cases, that’s thousands of dollars back into your pocket!

Is your credit score the only factor that impacts your mortgage rate?

Although a high credit score will usually land a borrower a considerably lower interest rate, it’s important to remember that it’s not the only factor that impacts your mortgage application. Your income, employment stability and down payment will also influence the rate. While having a credit score of 680 or above can certainly give you an advantage, it's key for home buyers to consider the importance of these other factors.

Can you still get a good rate if your credit score isn’t high?

If your credit score isn’t exactly where it needs to be, that’s okay. There are other options available that can still help you achieve your homeownership goals and save you money down the road. If you fall into the 600 to 680 range, this is considered “mid-level” credit – which may still give you the opportunity to qualify with some Prime A lenders that offer good rates and features. On the other hand, a low credit score is any number below 620, making it a little more challenging to get approved with a Prime A lender.

That’s why it’s important to keep other options in mind such as B lenders. These lenders include companies like Home Trust, Canada Western Bank and ICICI Bank, who have favourable mortgage options for people with lower credit. B lenders typically require you to make a larger down payment (20% or higher), their rates will be moderately higher compared to A lenders (if interest rates are at 2%, you’ll pay 4% and have a small fee) and you’ll be subject to a one-year or two-year term. Fortunately, during that one to two-year term, home buyers are given the opportunity to improve their credit with a chance to refinance into a Prime A mortgage at the end of the term.

What happens if you don’t qualify with a Prime A or B lender?

If you find yourself in a situation where you cannot qualify with a Prime A or B lender, there are still options for you. Although you may not get as low of a rate as you would with a Prime A or even B lender, private mortgage lenders give home buyers with low credit a chance to still get a mortgage. Private mortgages come at a higher rate with additional fees – so if you’re looking for the lowest rate, this wouldn’t be your best option. However, if you’re having a hard time meeting the typical lender criteria, this could be a helpful solution.

At the end of the day, credit score requirements and mortgage rates will vary with every lender. That’s why it's important to shop around and understand what you may be eligible for. At Homewise, we search the marketplace for the best options to ensure that you’re locking in a full-feature mortgage with a favourable rate that helps you save more money in the long run. Whether you have a good credit score or one that needs some improvement, our team of dedicated Mortgage Advisors is here to help. If you’re ready to begin the process, apply online with us in just five minutes and someone from our team will be in touch.

Watch this Mortgage Academy video to help you understand the type of credit score needed based on specific lender requirements.