When preparing to buy a home in Ontario, much of the focus is understandably placed on the visible challenges: saving for a down payment, navigating bidding wars, and finding the perfect property. Yet, working silently in the background is a single three-digit number with the power to significantly influence your entire home-buying journey: your credit score.

This number is one of the most critical factors lenders assess when you apply for a mortgage. It acts as a financial report card, telling lenders how reliably you’ve managed debt in the past. A strong credit score can unlock doors to better interest rates and more favourable terms, while a poor score can become a major roadblock. Understanding how your credit score impacts your mortgage qualification is essential for any prospective homebuyer in Ontario.

What is a Credit Score and How is it Calculated?

A credit score is a numerical summary of your credit history, ranging from 300 to 900. It is generated by Canada’s two main credit bureaus, Equifax and TransUnion, based on the information in your credit report. A higher score indicates lower credit risk.

While the exact formulas are proprietary, the calculation is based on five key factors:

  1. Payment History (Approx. 35% of your score): This is the most important factor. It tracks whether you pay your bills on time, including credit cards, lines of credit, and car loans. Late or missed payments can significantly lower your score.
  2. Credit Utilization (Approx. 30%): This measures how much of your available credit you are using. For example, if you have a credit card with a $10,000 limit and a balance of $5,000, your utilization is 50%. Keeping your utilization below 30% is highly recommended; lower is always better.
  3. Length of Credit History (Approx. 15%): A longer history of responsible credit management is generally better for your score. This is why it’s often advised not to close your oldest credit card account.
  4. New Credit Inquiries (Approx. 10%): When you apply for new credit, a “hard inquiry” is recorded on your report. Too many hard inquiries in a short period can suggest you are urgently seeking credit, which can lower your score.
  5. Credit Mix (Approx. 10%): Lenders like to see that you can responsibly manage different types of credit, such as revolving credit (credit cards) and installment loans (car loans, student loans).

The “Magic Numbers”: Credit Score Tiers for Mortgages

There isn’t one single “pass” or “fail” score for a mortgage, but there are generally accepted tiers that lenders use to assess your application.

  • 760 and above (Excellent): You are considered a very low-risk borrower. You will likely qualify for the best-advertised interest rates from most A-lenders (major banks and credit unions).
  • 700 – 759 (Very Good): You should have no trouble getting approved for a mortgage with competitive rates, assuming other factors like income and down payment are in order.
  • 680 – 699 (Good): This is still considered a solid score. You will likely be approved by A-lenders, though you may not be offered the absolute lowest promotional rates.
  • 620 – 679 (Fair/Average): This is often the minimum range for A-lenders. You may face more scrutiny, potentially be asked for a larger down payment, or be offered a slightly higher interest rate. If your down payment in Ontario is less than 20%, you will also need a minimum score (typically 680 with some insurers) to be approved for CMHC insurance.
  • Below 620 (Needs Improvement): Securing a mortgage from a traditional A-lender will be very difficult. At this stage, you may need to work with B-lenders (alternative lenders) or consider a private mortgage, which come with higher interest rates and fees.

How Your Score Directly Impacts Your Mortgage

Your credit score influences your mortgage application in three primary ways:

1. Your Interest Rate

This is the most direct financial impact. Lenders use interest rates to price risk. A borrower with a score of 780 is statistically less likely to default than a borrower with a score of 680. To compensate for the higher risk, the lender will charge the 680-score borrower a higher interest rate.

Even a small difference in the rate can add up to thousands of dollars over the life of the mortgage. For example, on a $500,000 mortgage with a 25-year amortization, the difference between a 4.5% interest rate and a 5.0% interest rate is over $45,000 in total interest paid.

2. Qualification and Borrowing Power

A strong credit score is a prerequisite for passing the federal mortgage stress test. Lenders are more confident in your ability to handle payments, even if rates rise. A lower score might lead a lender to approve you for a smaller mortgage amount than you had hoped for, as they may see you as having less capacity to take on a large debt load.

3. Lender Options

A high score gives you the power of choice. You can shop around at all the major banks and credit unions to find the best product, whether it’s a fixed-rate mortgage or a variable-rate mortgage. A lower score limits your options, potentially forcing you to work with alternative lenders who specialize in higher-risk files but charge a premium for their services.

How to Improve and Protect Your Credit Score

If your score isn’t where you want it to be, the good news is that it’s not permanent. You can take concrete steps to improve it before you apply for a mortgage.

  • Check Your Credit Report Regularly: Obtain a free copy of your report from both Equifax and TransUnion. Check for any errors or fraudulent activity and dispute them immediately.
  • Pay Every Bill on Time: Set up automatic payments or reminders for all your bills. This is the single most effective way to build a positive credit history.
  • Lower Your Credit Utilization: Focus on paying down the balances on your credit cards and lines of credit. Aim to keep balances below 30% of the available limit on each account.
  • Avoid Applying for New Credit: In the six months to a year before you plan to apply for a mortgage, refrain from opening new credit cards or taking on new loans (like a new car loan).
  • Keep Old Accounts Open: The longevity of your credit history matters. Even if you don’t use an old credit card, keeping the account open (as long as it has no annual fee) can help your score.

Think of your credit score as your financial fingerprint—it’s unique to you and tells a detailed story of your relationship with debt. For lenders in Ontario’s competitive mortgage market, it’s a quick and essential tool to gauge your reliability as a borrower. By understanding the factors that shape your score and taking proactive steps to manage it, you are not just chasing a higher number. You are empowering yourself to secure a better mortgage, save thousands of dollars in interest, and take a confident step into homeownership.