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Buying a Home? Get the Best Mortgage. How a Credit Score Affects Your Interest Rate

How a Credit Score Affects Your Interest Rate when shopping for a mortgage

Each year thousands of prospective homeowners are shocked to discover their credit history will hinder their ability to own their dream home.


Credit Score Buying a HomeThe very first thing that your loan officer checks when you apply for a mortgage or any kind of credit is your credit score. You are rated in terms of the score which in most cases influences the amount you can borrow. Understanding your credit score in a better way enhances your chances to develop a higher score and thus benefit from loans at better terms and conditions.


A credit score consists of many factors: your payment history, your credit card balances, bank accounts, including savings and checking accounts, and any other form of credit including all outstanding personal loans, mortgage loans, store credit cards, etc.

Credit scores are calculated from many different forms of credit data in your credit report. Each credit reporting bureau (Equifax or Trans Union) has their own standards and formulas that they use for the purpose of calculating a consumer’s credit score. The following is a generalized classification of a credit score rating:


What is a good credit score?Excellent credit rating - No late payments, no collection notices, no bankruptcies or repossessions.

Good credit rating - May contain a late payment within the last two years.

Fair credit rating - More than one late payment. May or may not have a bankruptcy or repossession in the last two to three years.

Poor credit rating - Recent collection attempts, late payments within the last year, bankruptcies and/or repossessions within the last two to three years.

The reason why a credit score is important is that it will determine your eligibility for a loan. A low credit score may hinder approval, and it will also impact the interest rate you will have to pay for the money that you borrow.


Since individuals with less than perfect credit traditionally present more of a risk of defaulting on a loan. Lenders are able to justify charging more interest to those consumers. The extra interest the lender earns on the loan is intended to compensate the lending agency in the event the consumer defaults on the loan. Over the course of a 25 or 30 year mortgage, those extra interest points can add up to an astounding amount of money.


Your credit score is the indication of your financial health. You should do your best to avoid damaging your credit history with late or missing payments, too many outstanding loans or too many loan requests.    Be careful when shopping around for a mortgage, too many credit checks from various banks could adversely affect your credit. 


Top credit scores with equifaxI suggest pulling your own credit report before approaching a bank.   Report any inaccuracies or errors (it does happen) to your Credit Bureau and have them corrected.   Then when shopping, advise the bank of your credit position and tell them once you’ve selected a bank they can do their final credit check. 

Watching your credit score closely especially before you make any major purchases will help you avoid unwanted surprises and give you more power to negotiate a better interest rate. 


Experts suggest it’s a good idea to monitor your credit once a year to safeguard against possible identity theft and ensure accuracy of your credit report.   Click here  to check your credit with Equifax or TransUnion Canada Credit Bureau’s.

I was surprised to find the two reports were not identical in 100% of the files we pulled.  The odd time Equifax had a delinquency that was not found on a Trans Union report and visa versa. 




> One of the most common surprises I have found with clients is old forgotten student loans.   If you find a flaw, the sooner you make the correction the sooner your score can start to climb.   In some cases credit scores can jump sufficiently in as little as 3 to 6 months.

> Applying for too many “pre-approved” credit cards within a short period of time.  It’s probably not a good idea to have 3 credits hits in a month.  Value the number of credit enquiries you permit.

> Stolen wallet?   Consumers love their credit card points and air mile incentives and many of us have our monthly cable, cell phone bills etc automatically debited to our cards.  When we loose our wallets, cards are cancelled and we forget to notify everyone of our new credit card number.   Avoid a late payment by remembering that extra step by calling the billing departments immediately of the credit card change.


What can I do to improve my credit score?


www.SuttonRealty.com – 905-896-3333


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The Lowest 5 Year Closed Mortgage

Posted: Saturday, September 20, 2008 9:46 PM by Sutton Realty


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