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    Beyond The Numbers: How Credit Scores Impact Your Real Estate Journey

    Understanding why that three-digit number is so crucial in securing that next home

    Written By Robert Van Rhijn

    So, you've decided to embark on the epic adventure of finding the perfect spot to call home in the Greater Toronto Area.

    Whether you're looking to buy your dream home or secure a cozy rental, there's a little three-digit number that might just be the key to unlocking those doors — your credit score.

    Now, we know what you're thinking: "Credit scores? Can't I just flash a charming smile and a winning personality to get the place I want?" Well, as much as we'd all love to believe in the power of charisma, the reality is that your credit score plays a very significant role in the GTA real estate game.

    The Credit Score Chronicles

    Imagine your credit score as a financial report card. It's a number that ranges from 300 to 900, and essentially tells both lenders or landlords how trustworthy you are with money. And ultimately: The higher, the better.

    In Canada, credit scores are typically categorized, ranging from poor to excellent, as follows:

    • Poor: 360 – 580
    • Below Average: 580 – 640
    • Fair: 640 – 700
    • Good: 700 – 750
    • Excellent: 750 – 850

    So, how does this mystical number affect your personal quest for a nice place in the GTA?

    Buying a Home: The Credit Conundrum

    If you're ready to take the plunge into homeownership, your credit score is like a golden ticket to the real estate chocolate factory.

    In Ontario, the minimum score you need to be approved for a mortgage is 680. But a higher credit score typically means you'll have access to lower interest rates on your mortgage. And that translates to paying less money in the long run. It's like getting an indirect discount on the biggest purchase of your life — who wouldn't want that?

    Additionally, your credit score can also affect how much cash you must put down at the start when dealing with a lender. That down payment size? It's a big deal, since it determines whether you're diving into the world of private mortgage insurance (PMI). And, if you are, how many bucks you'll be shelling out.

    Renting in the GTA: Credit is the New Cool

    Now, let's talk about the rental scene. Your potential landlord may not be as interested in how many followers you have on Instagram. But they sure as heck care about your credit score. Why? Because it's a sneak peek into your financial responsibility.

    Renting a place in the GTA is competitive, and landlords want to be sure you won’t flake on the rent or turn their pristine property into a wild house party venue.

    A solid credit score can be your secret weapon. It shows landlords that you're on top of your financial game, paying bills on time, and generally being a responsible adult.

    Achieving a credit score of 700 or above is considered favourable in the eyes of landlords. But if your score falls below this mark, there are some things you can do to enhance your appeal as a potential candidate.

    When landlords conduct a credit check, it's crucial to understand that they’re not only looking at the numerical score. They delve into specific details outlined in your credit report, extracting vital financial details, including:

    • Your payment history for existing credit accounts (and any reported late payments)
    • Presence of outstanding debts, such as loan or credit balances
    • Your debt-to-income ratio, with landlords generally favouring applicants who earn three to four times the asking rental amount
    • Any accounts in collections
    • Public records, noting bankruptcies and consumer proposals

    Being aware of these finer points can empower you to present a well-rounded financial profile, even if your credit score doesn't meet the coveted 700 benchmark.

    Credit Score Hacks

    Now that we've established the importance of your credit score in the GTA real estate escapade, let's talk about boosting that three-digit wonder.

    1. Pay Your Bills On Time: Timeliness is key. Set up those automatic payments, and watch your credit score bask in the advantages of punctuality.

    2. Keep Those Balances Low: Credit cards are like that tempting slice of cake — enjoy in moderation. Keeping your credit card balances low compared to your credit limit can do wonders for your score. Your credit utilization rate is one of the most significant factors. So keep this rate at 30% or under to maximize your credit score.

    3. Mix It Up: A diverse credit mix is like having a well-balanced diet for your financial health. Credit cards, loans, and other forms of borrowing can contribute positively to your score.

    4. Regularly Check Your Credit Report: Think of this as giving your financial health a check-up. Look for any errors or discrepancies that may be dragging your score down.

    Starting your search for a new home? Click on any of these links to access active listings, sold listings or contact a Strata agent.

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