Financing 101: What Is A Good Credit Score in Canada For A Mortgage?
It may so happen that you fall short of cash when you set out to make a huge investment. That’s when you might need to opt for a mortgage loan. One of the most important things to consider when it comes to loans is your credit score. Without a good credit score, getting a loan in any Canadian province is very difficult.
However, the notion that you need to have a good credit score to get cheaper loans is pretty vague. You must know the exact credit score that is required to apply for a mortgage. If this is something you are looking for, read until the end to find out everything about credit scores for mortgages in Canada.
Importance of A Good Credit Score
The importance of a good credit score is unfathomable. A good credit score serves the two most important purposes when it comes to mortgage loans.
- A good credit score helps you qualify for loans and reduces the chances of loan rejection.
- A good credit score also ensures that you qualify for lower interest.
When it comes to managing one’s finances, everybody likes to get discounts and thereby save on investments. You will be viewed as the low-risk party by the loan provider if you have a good credit score. This will help you qualify for a cheaper interest on the mortgage loan.
However, if your credit score is low, it indicates poor financial management and highlights you as a risky borrower. Hence, to compensate for the risk taken, your loan provider would charge higher interests.
A low credit score also increases the chances of the loan application getting rejected. You might feel that you have the financial resources to pay for the extra interest but if your credit score and financial records are extremely poor, you might not even qualify for a loan.
For example, if you are planning to make a huge investment in building a house; a loan rejection can bring your plans to a halt. Of course, there are other ways to ease financial jeopardy. You can definitely buy a house without paying the down payment. If you want to know more about this, check out this site. Nothing beats the value of a high credit score and clean financial records.
What is a Good Credit Score in Canada in 2021?
Talking specifically of Canada, a credit score of 680 or above is good.
Here is a detailed guide on how different ranges of credit scores perform when getting a loan.
1. 660 to 741 or above:
The best interest rates reside in the 740 and above range. 680 scores and above are also considered good. In this range, you can expect to find enough options with amazingly low interest rates.
However, the moment you enter the 660 categories, your credit score will be viewed as above average by your loan provider. In this category, you cannot expect the interests to be as lucrative as the 680 and above category.
2. 575 to 659:
This is considered the average and below-average category for loans. Once you enter this category, you will find it considerably difficult to zero in on the right loan provider.
Needless to say, your interest rates will also go up. When in this category, it is better to work on your credit score and improve it before applying for a mortgage loan.
3. 300 to 574:
A credit score in this category is extremely poor and finding a loan with this credit score is going to be a herculean task. The problem with this category of credit score is that you will be viewed as a risky borrower.
Not only will your interest rates go up but also, you’ll face a high loan rejection rate. Again, it is better to improve your credit score if you are in this category before applying for a loan.
How to Improve Your Credit Score
It’s not that you won’t get a loan with a bad credit score, but it will come with a host of unwanted headaches like making a huge down payment or opting for a joint mortgage. The easier alternative to this is to work on your credit score and improve it.
Here are a few ways in which you can improve your credit score:
- Keep your payments up-to-date. The debts and unpaid bills are the main culprits in bringing down your credit score. Hence, if you want to improve your credit score, you have to clear all your payments and debts.
- If your payment history is already tainted and you want to improve your credit faster, it is better to start afresh. Get a secured credit card and build your payment history to gain the confidence of lenders.
- Once you have started building your new payment history, make sure you clear the bills for the upcoming payments on time.
- Do not max out your credit card. Keep a low credit balance to reflect good financial management. This will help your credit scores increase sooner.
- If you have an old credit card with good payment history, make sure you keep them activated. Just because you don’t use them anymore doesn’t mean you should cancel them. Long payment histories help you a lot in improving your credit score.
- If your credit score is too poor, you might not be eligible for a regular credit card. In this case, you need to get a secured credit card by depositing a certain amount in the bank. This sounds like an extra expense, but secured credit cards go a long way in improving your credit score.
Whether it is to qualify for loans or insurance, a good credit score goes a long way. The tips mentioned above will come in very handy in increasing your credit score and improving your finance management.
In addition to maintaining a noteworthy credit score, inculcating healthy financial habits will help you multiply your personal wealth over the years.