Understanding Your Credit Score, and How To Improve It

A credit score is a numerical representation of your creditworthiness, and it plays a crucial role in securing a mortgage. It’s essential to understand how it works and how to improve it.

What is a Credit Score?

A credit score is a three-digit number that lenders use to assess how likely you are to repay your debts. It ranges from 300 to 900, with higher scores indicating better creditworthiness. Lenders, including banks and credit card companies, use this score to decide whether to lend you money and at what interest rate.

Factors Influencing Your Credit Score

Several factors influence your credit score. Understanding these can help you manage your credit effectively.

  1. Payment History: Your payment history is the most significant factor. Late or missed payments can negatively impact your score. This includes not just credit card payments, but also rent, utility bills, and creditors that report to the credit bureau.
  2. Credit Utilization: This is the ratio of your current debts to your available credit. Lower utilization rates are better for your score. It’s recommended to keep your utilization below 30% to maintain a healthy credit score. An example of this would be: if your credit limit was $3,000, and your balance owing was $1,500, your credit utilization ratio for this credit item would be 50%.
  3. Length of Credit History: The longer your credit history, the better your score can be. This is because a longer credit history gives lenders more information about your borrowing habits. Remember not to close credit accounts that you’ve had for years just because you are only using them sporadically, especially if there is no balances on them.
  4. New Inquiries: Each time a lender checks your credit, it can slightly lower your score. This is known as a “hard inquiry”. “Soft inquiries”, such as checking your own credit score, do not affect your score.
  5. Types of Credit: Having a mix of credit types, such as credit cards, car loans, and a mortgage, can positively impact your score. This shows lenders that you can manage different types of credit responsibly.

How to Improve Your Credit Score

Improving your credit score is not an overnight process, but with consistent effort, it is achievable.

Make Payments on Time

Ensure you pay all your bills on time. Setting up automatic payments can help avoid missed payments. If you’re having trouble making payments, contact your lender to discuss options. Even if you can only make the minimum payment, at least you are not reported as a late payer to the credit bureau.

Lower Your Credit Utilization

Try to keep your credit utilization below 30%. This shows lenders that you’re not overly reliant on credit. You can do this by paying off debts, keeping low balances, and not taking on new debt.

Limit New Credit Applications

Each time you apply for credit, it can lower your score. Only apply for new credit when necessary. If you need to apply for new credit, try to do so sparingly and responsibly.

Diversify Your Credit

Having a mix of credit types can improve your score. However, it’s important not to take on more credit than you can afford. Remember, the goal is not to have as much credit as possible, but to manage the credit you have responsibly.

Regularly Check Your Credit Report

Regularly check your credit report for errors. If you find any, report them to the credit bureau immediately.

The Impact of Your Credit Score on Your Mortgage

Your credit score can significantly impact your mortgage terms. A higher credit score can get you a lower interest rate, which can save you thousands of dollars over the life of your mortgage. On the other hand, a lower credit score can result in higher interest rates, or even difficulty getting approved for a mortgage.


Improving your credit score is a vital part of preparing for a mortgage application. By understanding how your credit score works and taking steps to improve it, you can increase your chances of securing a mortgage with favourable terms.

Remember, TheBroker.ca Ltd. is here to help guide you through the mortgage process. We’re committed to helping you make informed decisions about your financial future. Contact us today to learn more about how we can help you achieve your financing goals.

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