How to Improve Your Credit Score for a Better Mortgage Rate in Canada

by | Feb 19, 2025 | Credit Health, Mortgages | 0 comments

Why Your Credit Score Matters When Applying for a Mortgage

Your credit score is one of the most crucial factors that lenders in Canada consider when determining your mortgage eligibility. A higher credit score can mean:

✅ Lower interest rates
✅ Better mortgage terms
✅ Higher chances of mortgage approval

Most lenders require a minimum credit score of 680 to qualify for the best mortgage rates, while some alternative lenders may accept scores as low as 550. If your score is below this threshold, don’t worry—there are steps you can take to improve it.

Steps to Improve Your Credit Score Before Applying for a Mortgage

1. Pay Your Bills on Time (Biggest Factor)

One of the most important contributors to your credit score is your payment history. Missed or late payments can negatively impact your score for years, making it harder to qualify for a mortgage.

💡 Pro Tip:

  • Set up automatic payments for bills such as credit cards, phone bills, and utilities.
  • Even if you can’t pay off the full amount, make at least the minimum payment on time.

A single missed payment can stay on your credit report for six years—so consistency is key!

2. Lower Your Credit Utilization Ratio

Your credit utilization refers to how much of your available credit you’re using. Lenders prefer to see a utilization rate below 30%. If you’re maxing out your credit cards, it signals to lenders that you might be financially overextended.

💡 How to Reduce Credit Utilization:

  • Pay down your credit card balances before the statement closing date.
  • Request a credit limit increase (but don’t spend more).
  • Avoid carrying a balance on multiple credit cards.

For example, if you have a $10,000 limit on your credit card, try to keep your balance below $3,000 at any given time.

3. Limit New Credit Applications

Each time you apply for a new credit product—such as a credit card, car loan, or store financing—it triggers a hard inquiry on your credit report. Too many inquiries within a short period can signal financial instability and lower your credit score.

💡 What to Do Instead:

  • Avoid applying for new credit at least six months before applying for a mortgage.
  • If you need a new credit card, opt for a pre-approved offer instead of a new application.
  • If rate shopping for a mortgage, multiple inquiries within 14 to 45 days are typically counted as one inquiry.

4. Check Your Credit Report for Errors

Errors on your credit report could be dragging down your score without you knowing it. In Canada, you can check your credit report for free once a year through Equifax Canada and TransUnion Canada.

💡 Steps to Check & Fix Errors:

  1. Request your free credit report from Equifax or TransUnion.
  2. Look for incorrect information, such as wrong late payments, accounts you never opened, or outdated balances.
  3. If you find an error, file a dispute with the credit bureau to correct it.

5. Increase the Age of Your Credit Accounts

Lenders like to see a long history of responsible credit use. If you have older credit cards, keep them open even if you don’t use them often. Closing old accounts can reduce your average credit age, potentially lowering your score.

💡 Pro Tip:

  • If you have an old credit card, use it for a small recurring payment (like a Netflix subscription) to keep it active.
  • Avoid opening new accounts unless absolutely necessary.

6. Diversify Your Credit Mix

Lenders look at the types of credit you have, such as credit cards, car loans, personal loans, and lines of credit. A diverse credit mix shows that you can responsibly handle different types of credit.

💡 How to Improve This:

  • If you only have credit cards, consider adding a small personal loan or a line of credit to diversify your credit profile.
  • If you’re new to credit, a secured credit card can help build a positive credit history.

How Long Does It Take to Improve Your Credit Score?

Improving your credit score isn’t an overnight process—but with discipline, you can see positive changes within three to six months. Here’s a general timeline:

📌 1-2 Months: Small improvements from lowering utilization and making on-time payments.
📌 3-6 Months: A steady increase in your score, especially if you’ve paid off large debts or corrected errors.
📌 6-12 Months: Significant score improvements if you maintain positive habits consistently.

The sooner you start improving your credit score, the better mortgage options you’ll have when you’re ready to buy a home.

Final Thoughts

A higher credit score can unlock better mortgage rates, saving you thousands of dollars over the life of your loan. By making simple changes—like paying bills on time, reducing credit card balances, and checking your credit report for errors—you can boost your score and get closer to securing your dream home.

📣 Want to learn more about mortgage rates and home financing in Canada? Contact me today for a free consultation at 647-201-0167!

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