Buying your first home? Here’s why your credit score matters.


✔ A good credit score can help you qualify and get approved for a mortgage at a better interest rate.

✔ There are steps you can take to improve your score in advance of applying for a mortgage.

✔ Consider cutting expenses which can help to improve your debt service ratio, a critical piece in the mortgage approval process.

There are many things to consider when buying your first home, such as knowing the cost of homes in the areas you like, current interest rates, how much you’ll need for the down payment, and what kind of mortgage is best for you? These are just some of the questions you’ll need to ask as you start on your journey to home ownership.

But there’s another question that’s just as important: How will your credit history affect your chances of getting a mortgage when you’re ready to buy?

The answer is that your credit score is an important factor that lenders use to assess whether or not you qualify for a mortgage. While you’re doing your homebuying research, it’s important to take some time to learn about your credit score and how it may affect your chances of getting the money you need.

Credit score basics

Credit bureaus and reporting agencies regularly receive records of your financial activity such as the type of credit you have and how much you owe. Your credit report captures this data and provides your credit score. For example, if you regularly pay bills late, that will lower your credit score. Learn more about mistakes that can damage your credit score.

On its own, the report is just information. It becomes important when you apply for a mortgage and the lender uses the information to generate a 3-digit credit score that ranges from 300 to 900 – the higher, the better.

You can learn more about the information stored on your report in this quick 3-minute read.

How your credit score affects your mortgage

Lenders want to know that you’re financially responsible because they’re about to lend you a lot of money for a long time. Your credit score is the fair way to rate how well you manage things like paying bills on time, and not using all of your available credit. In their eyes, a good credit score means there is less risk of you not being able to keep up with payments and therefore you qualify for lower interest rates.

How your credit score impacts your mortgage payment

Below is an example of two people who qualify for a mortgage with a 5-year fixed interest rate and monthly payments. It shows how the difference between a “good” credit score and a “fair” credit score can affect the amount of the mortgage payment.


Note: For illustration only. Lenders will look at several factors to determine your interest rate (income, debt, equity, etc.).

While Tara and Pradeep borrow the same amount, Pradeep’s lower credit score means he will pay a higher interest rate through an alternative lender instead of qualifying for a mortgage with a lower interest rate at one of the big Canadian banks. His monthly mortgage payment will be $351.34 more than hers.

Other things that can affect your mortgage approval

To ensure that Canadians don’t borrow more money than they can afford to pay back, banks use two ratios that compare what you make to what you owe. Here’s how they work:

Total Debt Service (TDS)

According to the TDS, your maximum monthly debt load should not exceed 40% of your gross monthly household income.

Gross Debt Service (GDS)

According to the GDS, your maximum monthly home-related expenses should not exceed 32% of your gross monthly household income.

If your TDS or GDS ratios are holding you back from getting the size of mortgage you need, consider paying down debt before you apply. Consolidating all of your outstanding balances may help you to pay them off faster if you end up with one monthly payment that’s less than the combined total. See if this option is right for you.

Homeownership is possible

If you’re struggling financially and need ways to improve your credit score, easyfinancial can help.

We offer many borrowing options that help Canadians rebuild and improve their credit score. From personal loans to debt consolidation loans, we can help get you on the path to homeownership sooner. Connect with an easyfinancial representative at one of our 400 branches, or call 1-888-502-3279.

Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter

Previous Article
5 tips to save money around your home
5 tips to save money around your home

Next Article
Family tax benefits you can use this tax season
Family tax benefits you can use this tax season

Ready to get a Loan? Approval in Minutes

Get Approved