Keeping Score on Your Credit Matters When It Comes to Getting a Mortgage


Truth be told, the first step to buying a home is not to get a mortgage pre-approval the first step is to get a good credit score.

It’s a fact that First Foundation can help you obtain a better interest rate on your mortgage, BUT ONLY IF you have a good credit rating. Our team specializes in arranging the best mortgages in Canada for people with good to great credit.

After all, it’s our belief that you should get credit for having good credit.

So, how do you build good credit and where does a credit score come from? Credit scores are determined based on a mathematical formula that takes into account the following five factors:

1. Payment History (35%)

This includes recent payments that you have made on time, those that are more than 30 days late as well as any collections, judgments, or bankruptcies.

2. Outstanding Debt (35%)

This includes the number of creditors owed, credit card balances, and allocated limits. A maxed out credit card will have a far more negative impact on your credit score than one with a small balance. It’s best not to exceed 70% of any credit limit to obtain an optimal credit score.

3. Credit Account History (15%)

This refers to the length of time you’ve had your accounts. The longer you own and make regular payments on a credit line, the more positive your overall credit rating. For instance, owning a credit card for ten years and making regular, timely payments has a positive effect on your overall credit rating.

4. Recent Inquiries (10%)

Lenders access your credit report (and score) every time you apply for a loan or credit card in order to assess credit worthiness. Too many inquiries in a 12-month period can reduce your rating as it gives the impression that the borrower is “credit seeking” not to purchase homes or vehicles but to meet their financial needs.

5. Types of Credit (10%)

A good mix of different types of credit—including revolving credit (credit cards, lines of credit) and installment loans that you pay monthly (student loans, car loans)—is better for your overall credit picture. It demonstrates that you are able to manage both types of credit as each carry different kinds of responsibility.

As you can see, each component is weighted differently (see percentages) to create an overall credit score. Properly maintaining each of these components will give you the opportunity to obtain the best possible credit score.

Along with your credit history, your credit score is used by lenders in a variety of situations to authorize access or grant credit. It’s an important part of the mortgage qualifying process for both obtaining approval and accessing the best mortgage rates.

If you know you’ve got great credit, you can apply for a mortgage right now, and we’ll take care of the rest! Or, if you want to learn more about credit scores in general, read our other articles, Borrowers with Good Credit , Understanding Credit Reports , The Five C’s of Credit.

As the company’s first employee, Jennifer has been a Licensed Mortgage Associate since 2004, but her current role is not focused on mortgages. She is the resident blog writer and…

Learn more about Jennifer Rochford