A credit score is one of the basic requirements when applying for a mortgage. Generally speaking, you need a credit score above 680 to qualify for the top mortgage products available. Anything under does not mean you can’t get a mortgage, just that your rates and terms may not be as beneficial to your situation and will likely need to look elsewhere for financing, such as a private lender.

Private Lenders take a bit of a different approach compared to banks and other A Lenders. They have more relaxed eligibility standards and look more broadly at the borrower’s situation. You can also use private lender financing to consolidate debt and improve your chances of getting a better mortgage from a conventional lender.

Many borrowers do not fully understand how their credit score works or how it’s calculated. Understanding the process can help lower-score borrowers work on improving their credit over time.

The average range for credit scores is 300-850 and is meant to dictate to lenders a borrower’s ability to repay a loan. All this information is collected and stored by Credit Bureaus, Equifax and TransUnion.

To calculate your score, five key factors are taken into consideration.

Payment History

This is the first line item lenders look at, and factors into 35% of your overall score calculation. It indicates how well a borrower pays back their loans. Late or missed payments, overdue accounts, bankruptcies, and even written-off debt brings this number down. Working on consolidating debt or paying it back will help repair any bruised credit/

Credit Utilization

This compares how much debt has been used compared to the overall credit limit of a borrower. The more often you max out multiple credit cards, lines of credit or other accounts will lower your credit score. Being responsible with any credit products you hold will help keep your credit score high.

Credit History

If you have held a credit product for many years, that can improve your credit score. It shows a borrower’s experience with credit over time and gives lenders a better picture of your financial situation. It is always better to keep accounts open, even if you do not use them. If you only had mismanaged credit debt in one span, but your history shows you are better at it than that couple-month period, it will go a long way in helping you get a good credit score.

New Credit

If a borrower often applies for new credit products, you often get hard credit checks from the lender. The more of these you have in a short period of time will negatively affect your credit score.

Types of Credit

Holding multiple types of credit account responsibly will positively affect your credit score. This can be made up of credit cards, auto loans, mortgages, and lines of credit. While this does not factor greatly into your overall credit score, it helps raise it in your interests.

If you are facing bruised or damaged credit and need help managing debt, work with our award-winning mortgage brokerage in Ottawa, and we will get your finances back on track.