Is Your Credit Score Preventing You From Buying a House in The GTA?


With the city of Toronto being a hub for most industries on a provincial, federal, and even international scale, it’s no wonder that the real estate market has become one of the most expensive and competitive in the country.

If you’ve been thinking of buying a house in the GTA, have you considered the implications of purchasing a home in such a popular and expensive location?

Have you assessed your financial profile? More specifically, have you looked at your credit score and determined that it’s strong enough to secure a mortgage? Or is it low enough that it could potentially stand in the way of you getting approved?

Let’s look into the importance of a credit score when applying for a mortgage and help you determine if your score might be standing in the way of buying a home in the GTA.

What Factors Affect Your Credit Score?

A number of key factors influence your credit score, including the following:

Payment history. Perhaps the most important factor that impacts your credit score is your payment history. Even one missed payment can be detrimental to your score, and a slew of them is much worse. But a history of timely payments can help improve your score, so make sure never to miss a payment.

Utilization rates. Your credit utilization refers to how much you spend relative to your credit limit. So, if you have a credit limit of $5,000 on your credit card and you spend $2,000, your credit utilization ratio will be 40% ($5,000 ÷ $2,000). Generally speaking, a credit utilization ratio of no more than 30% is considered healthy for your score, while high ratios can pull your score down.

Length of credit history.  A long history of using credit is better than a short history because it’s filled with payment history and will give lenders a better idea of what type of borrower you would be.

Hard inquiries.  Whenever you apply for a loan, the lender will pull your credit report, marking a “hard” inquiry on your report and temporarily causing your score to dip. Many hard inquiries can harm your credit score because it shows that you’ve applied for a lot of new credit within a short period of time.

Credit account diversity. Having several different types of credit accounts shows future lenders that you’re responsible with your credit and are able to effectively manage multiple debt types.

What Are The Credit Score Ranges in Canada?

In Canada, credit scores range anywhere from 300 to 900 points. The higher your score, the better (click here to learn more about what your credit score range really means).

There are two major credit reporting bureaus in Canada – Equifax and Transunion – each of which calculates and determines credit scores and reports them in their own unique way. This is why you’ll likely have two credit scores that are slightly different.

According to the major credit bureaus in Canada, 650 is the minimum average score needed to get approved for loans and credit lines. Any score lower than that will likely result in a denied loan application, while scores higher than 650 will increase the chances of securing a loan. 

Knowing where your credit score stands on the credit score spectrum is very important when you’re considering applying for a mortgage or any other type of loan. 

Depending on what your score is, you’ll not only know whether or not you’d be likely to get approved for a loan, but you’ll also know if you’ll be eligible for a lower interest rate, as consumers with higher credit scores are more likely to qualify forlower rates. As such, their loans will end up being more affordable over the long run.

Why is it Important to Have Good Credit?

Several factors come into play when it comes to assessing your financial health, and your credit score is one of them. More specifically, your credit score plays a key role in whether or not you’ll be able to get approved for a mortgage, car loan, credit card, or personal installment loan. 

When you apply for new credit, your lender will assess your credit score and make their decision based largely on that number. With a higher credit score, you’ll be perceived as less of a risk, and will, therefore, have a better chance of getting approved for a loan at a lower interest rate.

But a lower score will have the opposite effect, as you will be perceived as a higher-risk consumer. You’ll therefore have a lower chance of getting approved for a loan. And even with loan approval, there’s a good chance that the interest rate you’d be charged would be much higher to offset lender risks. 

What Credit Score is Required to Get Approved For a Mortgage in The GTA?

As already mentioned, the minimum credit score required to get approved for a mortgage in the GTA is around 650. That said, the exact number will depend on some of your other financial factors (including income, assets, debts, and down payment amount), as well as the lender. Obviously, the higher the credit score, the higher the odds of mortgage approval. 

Improving Your Credit Score to Get Approved For the Mortgage You Want

While you may have some alternatives to conventional lenders when applying for a mortgage with bad credit, you’d be better off taking some time to improve your credit score. With a better score, you can improve your chances of loan approval and of getting the lowest interest rate possible.

There are plenty of important things you can do right now to help give your credit score a boost, including the following:

Get a copy of your credit report. You’re entitled to a free copy of your credit report every 12 months, which you should take advantage of for a couple of reasons. 

For starters, it will provide you with the opportunity to find out what your score it and what events are shaping it, and therefore see how lenders will judge you according to your report. It will also help you see if there are any errors on it that may be pulling your score down. You can then request to have these errors investigated and fixed right away.

Pay your bills on time. Each timely payment that you make can help your score gradually improve. 

Keep your credit utilization ratio low. Don’t spend any more than 20% to 30% of your credit limit in order to keep your utilization rate low and bring up your credit score.

Get a secured credit card. If you have a history of financial troubles, then it might be best to take the time to build your credit score by taking advantage of a secured credit card.

A secured credit card requires an upfront deposit of cash, which becomes your credit limit. Since the card is collateralized by this deposit, it’s easy to get approved for. And if you use the card responsibly, you can gradually build up your credit score and take advantage of more loan products in the future.

The Bottom Line 

When it comes to applying for a mortgage, especially in a place like the GTA where prices are high and competition is stiff, it’s important to be as prepared as possible. A good credit score, while not the only factor that affects mortgage approval, will still improve your chances of making your dream of owning a home a reality. 

This article was contributed by Loans Canada, the nation’s original loan search platform.