How much does your credit score affect your mortgage rate?

This article has been updated from a previous version.

In Canada, mortgage lenders use your credit score to gauge risk—if you have a higher score, that tells your bank that your risk is low, which usually prompts them to offer a better rate. Depending on your credit score, you could save — or further spend —tens of thousands of dollars on your mortgage.

With the average Canadian credit score hovering around 760, understanding how your score impacts your financial future can guide you how to take more ownership and control of your finances.

What is a credit score?

A credit score is a three-digit number ranging from 300 to 900 that represents your creditworthiness. Think of it as a financial report card that lenders use to assess how likely you are to repay borrowed money.  

Here’s how it’s calculated:

• Payment history (35%): Paying bills on time is the most significant factor.
• Credit utilization (30%): Using less than 30% of your available credit is ideal.
• Length of credit history (15%): The longer your credit accounts have been active, the better.
• New credit (10%): Opening multiple new accounts in a short time can lower your score.
• Credit mix (10%): A variety of credit types (e.g., credit cards, loans) show financial responsibility. 

How is your credit score connected to mortgage rates

Your credit score is one tool that lenders use to assess risk. A higher score signals lower risk, which often translates to lower mortgage rates. Borrowers with credit scores above 760 qualify for the best mortgage rates, often saving thousands over the life of their loan.

In contrast, borrowers with scores below 600 may need to rely on private lenders, where rates can exceed 10%.

Here’s how it works.

Imagine two borrowers ready with a 20% down payment:

• Jane: Credit score of 780, qualifies for a 4.51% 5-year fixed mortgage rate (best rate available).
• John: Credit score of 640, offered a 6.79% fixed rate.

Using our monthly mortgage payment calculator, on a $500,000 mortgage with a 25-year amortization:

• Jane’s monthly payment: $2,216
• John’s monthly payment: $2,750

Over 25 years, John pays $160,200 more in interest than Jane.

Note: These rates and figures are hypothetical and used for illustrative purposes only. Actual rates may vary based on lender policies and market conditions.

Related: Pre-qualified, pre-approved, approved: What do these mortgage terms really mean? 

Debt ratios and credit scores

Your credit score doesn’t just influence your mortgage rate—it also plays a role in determining how much debt you can take on when applying for a mortgage.  

Debt ratios, specifically the gross debt service ratio (GDSR) and total debt service ratio (TDSR), are key metrics lenders use to assess your financial capacity.

What are GDSR and TDSR?

GDSR  

The percentage of your gross income spent on housing costs, including mortgage payments, property taxes, heating, and 50% of condo fees (if applicable).

TDSR  

The percentage of your gross income spent on all debt obligations, including housing costs, credit card payments, car loans, and other debts.

Current CMHC guidelines

As of 2025, the CMHC allows the following maximum debt ratios for insured mortgages:

• GDSR: 39%
• TDSR: 44%

These limits apply regardless of your credit score, following a policy reversal in July 2021. Previously, borrowers with credit scores below 680 faced stricter limits (35% GDSR and 42% TDSR). The change was made to align CMHC’s rules with private insurers, making mortgages more accessible to Canadians. 

How debt ratios impact borrowing power

Let’s consider an example: Assume Borrower A has an annual gross income of $100,000.

Under the old GDSR limit of 35%, they could qualify for a mortgage with monthly housing costs of up to $2,917.

With the current GDSR limit of 39%, they can now qualify for monthly housing costs of up to $3,250.

This increases their borrowing capacity by approximately $71,000.

Why do debt ratios matter? Debt ratios ensure borrowers don’t overextend themselves financially. However, they also highlight the importance of maintaining a strong credit score. A higher credit score can improve your overall mortgage application, even if your debt ratios are near the maximum limits.

Related: Can you negotiate your mortgage?

How to manage debt ratios

• Reduce existing debt: Pay down credit cards and loans to lower your TDSR.
• Increase your income: Additional income sources can improve your ratios.
• Budget for housing costs: Keep housing expenses within the GDSR limit to avoid overextending.

Related: Is debt consolidation right for you? 

Improving your credit score for new mortgages and renewals

If your credit score is currently lower than you’d like it to be, fear not. You can actively work to improve it over time and benefit from better rates down the road, whether that’s by time you plan to apply for a new mortgage or upon renewal of an existing one. You’ll also be able to see your credit score improve in real time!  

Why your credit score matters at renewal

When your mortgage term ends, lenders reassess your financial profile, including your credit score. A higher score can:

• Qualify for lower interest rates.
• Provide access to more competitive offers from other lenders.
• Improve your chances of approval if you’re switching to a private lender or refinancing. 

Actionable tips to improve your credit score

Here are practical steps to boost your credit score, whether you’re preparing for a new mortgage or renewal:

Make timely payments

• Pay all bills on time, including credit cards, utilities, and loans.
• If you can’t pay the full amount, ensure you at least make the minimum payment.
• Late payments can stay on your credit report for up to six years.

Keep credit utilization low

• Aim to use less than 30% of your available credit limit.
• For example, if your credit card limit is $10,000, try to keep your balance below $3,000.

Check your credit report for errors

• Request your free credit report from Equifax or TransUnion annually.
• Look for inaccuracies, such as incorrect balances or accounts you don’t recognize, and dispute them immediately.

Limit credit inquiries

• Avoid applying for multiple credit products in a short period.
• Each “hard inquiry” can lower your score slightly and signal financial stress to lenders.

Maintain long-standing accounts

• Keep older credit accounts open, even if you don’t use them frequently.
• A longer credit history positively impacts your score.

Diversify your credit mix

• Use a combination of credit types, such as credit cards, car loans, and lines of credit.
• This demonstrates your ability to manage different forms of debt responsibly.

Avoid maxing out credit cards

• Even if you pay off your balance monthly, high utilization during the billing cycle can temporarily lower your score.

Set up payment reminders or auto-pay

• Automate payments to ensure you never miss a due date.

Related: Which credit card program is right for you? 

How long does it take to see results with your credit score?

Your credit score updates as your credit report is refreshed, typically every 30 to 90 days. Consistent efforts over several months can lead to noticeable improvements.

By taking these steps, you can position yourself for better mortgage terms, whether you’re buying a new home or renewing your current mortgage. A higher credit score not only saves you money but also provides greater financial flexibility.

Read next: How long should you be at your job before applying for a mortgage?