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Credit Scores: What Are They

and What Affects Them?

Michelle McNally courtesy REALTOR.ca
uch like your income and down payment, your individual credit score is a major financial component of
qualifying for a mortgage when looking to buy a home. Your credit score will be one of the main criteria
Mlenders will examine when applying for a mortgage, so it’s important to ensure your score is in good
standing before embarking on the home purchase process. But what exactly is a credit score, and what sets a good
score apart from a bad one?
Frances Hinojosa, CEO, co-founder, and principal mortgage broker at Tribe Financial Group, explains what you should
know about credit scores and what factors influence them.

What is a credit score, and why is it important?
In simple terms, a credit score is an evaluation of how you maintain and utilize credit, such as credit cards, loans,
mortgages, and other credit facilities.

Hinojosa says many people don’t realize their credit score is one of the biggest indicators when it comes to the
mortgage qualification process, and could impact the interest rate you receive for your mortgage.

“That’s one of the very first things a bank or a mortgage broker would consider or would look at,” she explains. “It’s
equally as important as your income or affordability of paying a mortgage.”

Hinojosa says many mortgage products are credit score-
driven, meaning your credit score will determine what
interest rates may be made available to you, as well as
your ability to qualify for certain mortgage products
and types.

A score of 680 and above is the sweet spot that’ll give
you access to most products—anything less than this
might limit your options. If you have a score of 600 or
less, you may be looking at higher risk-based pricing on
your mortgage and interest rate offerings.
Your credit score is determined by a number of factors,
such as your credit payment history, the amount of
credit you have available, and how long you’ve had it
for. Having a healthy credit score demonstrates to a
lender you can meet your payment commitments over
time.
“It shows the consumer is responsible and has a track record of owning up to their obligations and paying as agreed,”
said Hinojosa. “That also plays into risk-based pricing on the actual mortgages, as well.”

What factors determine my credit score?
There are a handful of indicators that play a role in shaping your credit score, according to Hinojosa.

One of the most influential factors is your payment history, which includes making sure you pay your debts on time.
Thirty-five per cent of your credit score is based on payment history. If you can’t pay off your credit card in full,
Hinojosa recommends making at least the minimum payment by the due date to keep your score in good shape.

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