Never before has a one’s credit score been so important with regard to one’s mortgage rate.  With recent changes by OSFI on capital requirements on the default insurers, tying credit scores to the capital formula more, more lenders are setting mortgage rates based on credit score and set minimum scores standards for certain products.   Some products require a 720 credit score.  A 720 vs 650 score can, in some cases, result in a .25% better rate.

Most people have no idea how credit scores are determined but here is a summary of things one can do to maintain a strong credit score:

The key factors in maintaining a strong credit score are:

• Minimize the number of inquiries granted to creditors (you score goes down slightly each time a company pulls your credit score (car loan, credit card application, bank loan etc. etc) so don’t credit seek – you only need 1 or 2 credit cards).

• Never let the balance hit the maximum allowable limit and if it does, pay it down immediately – don’t let it stay maxed or near maxed for any period of time.  Try not to have it remain over 65% of the allowable limit.

• At the very least, always pay the minimum balance on time but if possible pay off more than the minimum or ideally pay it off completely each month.  Just the minimum will hurt the score over time especially if the balance is high and several cards are in this scenario.

• The longer you have a credit product the better (assuming it has been paid on time).

• R1/I1’s are good – lenders look for these as they indicate that revolving or installment payments are paid up to date as agreed.

• Be sure to clear any disputes or collections.  That $50 dispute with your gym membership isn’t worth having your credit ruined.  Get it resolved immediately.  It is not easy to fix after the fact as once the score is damaged, in most cases only proper repayment and time will repair it.

• Don’t be late with payments ever.

Thank you to our partner Derek Christianson for this information.