What lenders see when they pull your credit

Most people think of their credit as a number. Lenders think of it as a document, and the number is one line near the top.

Understanding what else is on that document explains a lot of otherwise baffling outcomes: why someone with a high score gets declined, why someone with a mediocre score gets approved, and why the answer changes depending on which lender the file goes to.

The score, and what it is for

In Canada, credit scores run from 300 to 900. Two bureaus produce them, Equifax and TransUnion, and your number at each will differ, sometimes noticeably, because lenders do not all report to both.

Two thresholds matter in practice.

• 600 is the floor for a default-insured mortgage. At least one borrower on the application must reach it. That is a firm line rather than a guideline, and no amount of income compensates for falling under it.
• 680 is where most prime lenders are comfortable. Below it you are not automatically declined, but your options narrow and some lenders price differently.

Under those thresholds the conversation moves to alternative lenders, which our page on bad credit and alternative mortgages covers.

What else the report shows

This is the part people do not picture, and it is where decisions are actually made.

Every account you hold. Credit cards, lines of credit, car loans, student loans, existing mortgages. For each one the lender sees the limit, the current balance, the required payment and the month by month payment history going back years.

Exactly how late you have ever been. Not just whether you missed a payment, but by how much. Thirty days late reads very differently from ninety. A single late payment four years ago is noise. Three in the last year is a pattern.

Your utilisation. How much of each limit you are using. This one carries more weight than most people realise, and it is discussed below.

Everyone who has checked you recently. Applications you made, including ones you abandoned.

Collections, judgments, bankruptcies and consumer proposals. These stay on file for years and a lender will ask about them directly.

How long you have had credit. A thin file is not the same as a bad one, but it gives a lender less to work with. This is the usual situation for people new to Canada.

The things that actually move the decision

Utilisation, more than you would expect. Carrying a balance near the limit on a card hurts, even if you pay it off in full every month, because the bureau usually sees the balance on statement day rather than after you pay. Someone using most of their available credit looks stretched regardless of income. Getting balances well down before you apply is one of the fastest improvements available.

Recent missed payments. Recency matters more than count. Lenders are far more forgiving of something old than something last quarter.

Payments you are already committed to, not balances. For qualifying purposes the lender counts the monthly payment on each debt against your income. A car loan with two years left affects how much mortgage you qualify for more than most people expect, often by a meaningful amount.

Unused credit limits. A card with a high limit and nothing on it still counts, because you could draw on it tomorrow. Some lenders include a portion of unused limits in the calculation.

About credit inquiries

The received wisdom is that checking your credit hurts your score. The reality is more specific.

Checking your own credit is a soft inquiry and does nothing at all. You should do it before applying for a mortgage, every time.

A lender pulling your credit is a hard inquiry and has a small effect. Several hard inquiries for the same purpose within a short window are generally treated as one, because the bureaus recognise rate shopping. So working with a broker who submits your file to several lenders does not multiply the damage the way people fear.

What does cause trouble is scattered applications for different kinds of credit over a period: a card here, a car loan there, a store financing offer. That reads as someone seeking credit urgently, which is precisely the impression you do not want while a mortgage is being underwritten.

What to do before you apply

Give yourself a few months if you can. Most of this is slow to take effect.

• Pull both bureau reports and read them. Errors are common. An account that was closed but still shows open, a paid collection still marked outstanding, a debt that was never yours. Disputing an error is free and can move the number more than any other single action.
• Pay balances well down. Not to zero necessarily, but well clear of the limits.
• Do not close old cards. Length of history helps you. Closing your oldest card removes that.
• Stop applying for anything else. No new cards, no car financing, no furniture on credit.
• Never miss a payment, even a small one. The minimum payment on time protects you far better than a large payment made late.

After you are approved, and before you close

This one catches people every year, and it is entirely avoidable.

Approval is not the end. Lenders frequently re-check your credit shortly before closing, and some check the day before. Anything that changed between approval and funding can undo the whole thing: new debt, a missed payment, a large purchase on a card.

Buying a car, financing furniture for the new place, or opening a store card to get the discount on appliances has cost people their closing. Wait until the money has moved and the keys are in your hand. Our note on the road from accepted offer to closing day covers what else can go wrong in that window.

If your credit is not where you want it

It is worth knowing that a mediocre score is not a dead end, it is a narrower set of doors. Lenders weigh credit differently, and a strong down payment, stable income or a well documented explanation for a past problem can carry a file that one lender would decline outright.

That is most of what a brokerage does. Send us the situation before you assume the answer is no, including when a bank has already said it.