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Mortgage rate directly related to credit score?

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  • Mar 28th, 2016 10:17 pm
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[OP]
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Nov 15, 2006
1529 posts
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Mortgage rate directly related to credit score?

Hi,

I searched through the forum looking for answers but I couldn't find any.
I have read many articles saying that if you have 650+, you are safe for mortgage, and above 720 or something, you get the best rates and I have a question about this last part.

Let's say there are two people with exactly same profiles, but two different credit scores 720 and 820.
Would these two get offered the same mortgage rates? or does better score mean lower mortgage rate? (I understand that there are other factors that determine the mortgage rates, hence the two people with the same profiles.)

I ask because I am thinking of purchasing a house in the next 1 or 2 years and I know my score is good (just below 800), but I may need to close an old CC account and get a new one.
I think that will impact my credit score negatively at least two times so I was wondering if I should go ahead with it, or wait 1-2 years, get my mortgage rates, and then close the old credit card and open another one.

Thanks in advance!
10 replies
Member
Nov 30, 2015
221 posts
36 upvotes
Mississauga, ON
jessicacha wrote:
Mar 4th, 2016 10:13 am
Hi,

I searched through the forum looking for answers but I couldn't find any.
I have read many articles saying that if you have 650+, you are safe for mortgage, and above 720 or something, you get the best rates and I have a question about this last part.

Let's say there are two people with exactly same profiles, but two different credit scores 720 and 820.
Would these two get offered the same mortgage rates? or does better score mean lower mortgage rate? (I understand that there are other factors that determine the mortgage rates, hence the two people with the same profiles.)

I ask because I am thinking of purchasing a house in the next 1 or 2 years and I know my score is good (just below 800), but I may need to close an old CC account and get a new one.
I think that will impact my credit score negatively at least two times so I was wondering if I should go ahead with it, or wait 1-2 years, get my mortgage rates, and then close the old credit card and open another one.

Thanks in advance!
I don't know about mortgage but why are u closing your oldest card?
If it has annual fee and you want to switch to a different rewards cc just downgrade your old card to a no fee card.
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Sep 13, 2011
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Not true at all. Mortgage rate really has nothing to do with credit score, with the odd exception. Most of the time, if you have one person with a 650 score and the other with an 820 score, the rate will be the same for both. You either qualify for you don't. No preferential rates for someone with a higher score. Some rate specials may have a minimum credit score of 650 or even 680. Some lenders such has IA have a minimum credit score of 650 purchases or 680 on refinances, however this is on ALL their products. You either qualify or you don't.

If you're score is 800, you really don't need to worry about making a few changes to your credit. It could drop to 700 and wouldn't affect you at all. Just make sure you have at least two revolving trade lines (line of credit or credit cards) to maintain healthy credit. Also ensure you have a limit of at least $1,500 on each, preferably more. The score is just one component. You can still have a high score and be declined on credit if there is not enough on your credit bureau to demonstrate credit responsibility. For example, someone might have an 830 credit score with just a single credit card with a $500 limit and nothing else on their credit bureau. This person would be declined for a mortgage due to insufficient credit.

Hope this helps :)
Paul Meredith
Mortgage Broker, Author
CityCan Financial Corp (lic. 10532)
[OP]
Deal Addict
Nov 15, 2006
1529 posts
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petera89 wrote:
Mar 4th, 2016 10:27 am
I don't know about mortgage but why are u closing your oldest card?
If it has annual fee and you want to switch to a different rewards cc just downgrade your old card to a no fee card.
Oh, it's because I like to keep a maximum of 5 cards, and I would like to open another one, but the one I use the least (if at all) is my oldest card because of its reduced benefits, so I was thinking to close that before opening a new one.
Maybe I just don't understand this whole credit score system well enough. :(
[OP]
Deal Addict
Nov 15, 2006
1529 posts
318 upvotes
PaulMeredith wrote:
Mar 4th, 2016 10:27 am
Not true at all. Mortgage rate really has nothing to do with credit score, with the odd exception. Most of the time, if you have one person with a 650 score and the other with an 820 score, the rate will be the same for both. You either qualify for you don't. No preferential rates for someone with a higher score. Some rate specials may have a minimum credit score of 650 or even 680. Some lenders such has IA have a minimum credit score of 650 purchases or 680 on refinances, however this is on ALL their products. You either qualify or you don't.

If you're score is 800, you really don't need to worry about making a few changes to your credit. It could drop to 700 and wouldn't affect you at all. Just make sure you have at least two revolving trade lines (line of credit or credit cards) to maintain healthy credit. Also ensure you have a limit of at least $1,500 on each, preferably more. The score is just one component. You can still have a high score and be declined on credit if there is not enough on your credit bureau to demonstrate credit responsibility. For example, someone might have an 830 credit score with just a single credit card with a $500 limit and nothing else on their credit bureau. This person would be declined for a mortgage due to insufficient credit.

Hope this helps :)
Thank you so much for your detailed explanation!
I always assumed that higher score meant lower interest rate so I couldn't understand why articles kept saying "best rates for scores over 700".
I have like 40K limit in total so I guess I should be alright?

Thanks!
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Feb 2, 2014
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jessicacha wrote:
Mar 4th, 2016 10:50 am
Thank you so much for your detailed explanation!
I always assumed that higher score meant lower interest rate so I couldn't understand why articles kept saying "best rates for scores over 700".
I have like 40K limit in total so I guess I should be alright?

Thanks!
All you need is at least 2 trade lines (credit card, line of credit, car loan....) with at least 2 years of clean history on them. Limits on those trade lines should be at least $2k.
Kevin Somnauth, CFA
Mortgage Broker - Mortgage Architects (#10287) and Real Estate Salesperson - Century 21 Innovative
President's Club Award Winner At The Mortgage Architects
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Apr 4, 2013
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The vast majority of mortgage qualification in Canada is based on a "Meets/Does Not Meet" model. Is the credit score greater than or equal to 650? Yes or No? Are the total costs for housing less than or equal to 32% of gross income? Yes or No. What this means is that a person with a credit score of 800 will not receive a lower mortgage interest rate than someone with a credit score of 720. Someone who spends 10% if their income on housing will not receive a lower interest rate than someone who spends 30% of their income. As long as you meet the minimum, you are good to go.

Just make sure when you are researching that you are visiting high quality sites that are Canadian. I am friends on Facebook with a Money Coach who just yesterday sent out a link on the 5 things you need to know about your mortgage. When I went to the link, the information presented was for American mortgages and none of it was relevant to Canada. Opps! I am thinking that she posted it without actually reading it first.
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Mar 13, 2010
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Then how do people get a lower rate? For example a variable at prime -0.4 vs prime -0.7. Is it just luck of the draw?
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skykisser wrote:
Mar 28th, 2016 5:58 pm
Then how do people get a lower rate? For example a variable at prime -0.4 vs prime -0.7. Is it just luck of the draw?
You just have to go to the sources that offer lower rates. Any regular posting broker here should be able to help you out. Rates also change all the time, so what was available last year.. or even a month ago, may not be available today. Prime -0.70% doesn't exist right now... but back in the summer you could have got prime -0.90%.

Unlikely you're going to get a rate that is too competitive when dealing with a major bank, but you can always try.
Paul Meredith
Mortgage Broker, Author
CityCan Financial Corp (lic. 10532)
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Apr 4, 2013
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skykisser wrote:
Mar 28th, 2016 5:58 pm
Then how do people get a lower rate? For example a variable at prime -0.4 vs prime -0.7. Is it just luck of the draw?
Buying money is no different than buying any other thing - you shop around. Different mortgage lenders have different rates.
Member
May 5, 2013
311 posts
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skykisser wrote:
Mar 28th, 2016 5:58 pm
Then how do people get a lower rate? For example a variable at prime -0.4 vs prime -0.7. Is it just luck of the draw?
As others say shop around, also the more you borrow the better rate you will get, no one will give you a p-.7 if you just want to borrow a 100k.

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