How Your Credit Score Affects Mortgage Rates in Canada

What Is a Credit Score and How Is It Calculated in Canada?

A credit score in Canada is a three-digit number that lenders use to assess how likely you are to repay borrowed money. It’s based on the information in your credit report, which is compiled by credit bureaus like Equifax and TransUnion.

In Canada, credit scores range from 300 to 900. The higher your score, the less risk you represent to lenders. Your score is influenced by your payment history, how much credit you use, the length of your credit history, the types of credit you have, and how often you apply for new credit.

While the exact formulas used by credit bureaus are proprietary, most scoring models weigh factors like payment history and credit utilization most heavily. Maintaining a consistent record of on-time payments and keeping balances low can help you build a higher score.

Lenders look at both your credit report and your credit score to decide whether to lend to you and what interest rate to charge.

Sources: lendsimpl, AKAL Mortgages, Financial Consumer Agency of Canada (FCAC)

Credit Score Ranges and Typical Mortgage Rate Differences

Credit scores are generally grouped into categories such as fair, good, very good, and excellent. The exact boundaries can vary slightly between lenders, but the ranges below are commonly used in the Canadian mortgage market.

Your score directly influences the interest rate you’re offered. A higher score typically translates into a lower rate, while a lower score can mean higher borrowing costs. However, the exact rate difference for any given score range is not fixed and can vary by lender, loan type, and other factors.

The table below presents general guidelines based on common industry practice, but actual rates depend on your complete financial picture.

Sources: Ratehub.ca, lendsimpl, AKAL Mortgages

Minimum Credit Score Required for a Mortgage in Canada

The minimum credit score you need depends on the type of lender and mortgage you’re applying for.

For an uninsured or conventional mortgage, most major Canadian banks and federally regulated lenders (A-lenders) require a score of at least 680.

Some lenders may accept scores as low as 560, but you’ll likely face higher rates. B-lenders and alternative lenders may accept credit scores in the 550–679 range, but they typically charge more—often 0.50% to 2.00% more than A-lenders. Private lenders have no set minimum score and may approve borrowers with poor credit, but they charge higher rates and fees.

Sources: lendsimpl, AKAL Mortgages, Ratehub.ca

How Lenders Use Your Credit Score in the Approval Process

Lenders use your credit score as a key indicator of risk. A higher score reassures them that you’re likely to make your mortgage payments on time, which often results in a lower interest rate. Conversely, a lower score signals more risk, leading to higher rates or even a denial.

Beyond the score, lenders review your credit report for negative items such as late payments, defaults, or bankruptcies. Your past credit history is one of the factors lenders consider when determining the risk of lending to you; more risk generally means a higher interest rate.

Sources: Bank of Canada, Financial Consumer Agency of Canada (FCAC)

Steps to Improve Your Credit Score Before Applying

If your credit score isn’t where you want it to be, you can take steps to improve it before applying for a mortgage. The two highest-impact actions are:

Paying all your bills on time—your payment history is a major factor in your score.

Keeping your credit card balances below 30% of your credit limit—high balances can hurt your score.

Improving your credit score may help you qualify for a lower interest rate, though the exact reduction varies by lender and market conditions. A difference of 80 points (for example, 640 vs.

1. Check your credit report for errors and dispute any mistakes.
2. Set up automatic payments or reminders to ensure you never miss a bill payment.
3. Pay down credit card balances to keep your utilization below 30%.
4. Avoid applying for new credit in the months before your mortgage application.
5. Consider asking a lender about building credit if you have no history.

Sources: lendsimpl, Financial Consumer Agency of Canada (FCAC)

Common Credit Score Myths and Mistakes

There are several myths that can mislead borrowers preparing for a mortgage. Understanding what actually affects your score can help you avoid costly mistakes.

One common myth is that checking your own credit score lowers it. In reality, a soft inquiry—such as checking your own score—does not affect your credit score. Only hard inquiries, which occur when a lender checks your credit for an application, may have a small impact.

• Myth: Closing old credit cards improves your score. In fact, closing accounts can shorten your credit history and reduce your available credit, which can lower your score.
• Mistake: Applying for multiple loans or credit cards in a short time. This creates hard inquiries and can make you look risky.
• Myth: A low income automatically means a poor score. Your income is not directly part of your credit score; your history of using credit is what matters.
• Mistake: Ignoring your credit report. Errors can drag your score down, so review it regularly before applying.

Sources: lendsimpl, Financial Consumer Agency of Canada (FCAC)