A 700 Credit Score Doesn’t = Good Credit

Credit-Score There’s more to a credit report than a score.

You can have good income and a 700 credit score (which is about average) and still not qualify for a mortgage.  The reason is that lenders generally look for one key factor: repayment history.

Suppose, for example, that you have a 710 credit score but only one credit account. Worse yet, that one account is a credit card that you’ve had for only two months.  Before that, you’ve had either no credit or bad credit (most likely, any bad credit would be from a few years ago, given your score).

In this case, your 710 score may not get the job done.

Lenders often want to see a minimum of 1-2 years of satisfactory payment history and at least two “trade lines” (loans or revolving credit accounts).  A trade line can consist of a major credit card with a $1,500+ limit (a rough rule of thumb), a revolving credit line, a reported lease, or an instalment loan (like a vehicle or investment loan).

So, if you have no credit and you hope to apply for a mortgage, start building credit pronto.  Get a credit card (even if it’s secured), a small instalment loan, a Futureshop card, whatever.  And don’t ever make a late payment.  Many lenders require squeaky clean repayment history for at least 1-2 years.

Of course, there are lots of exceptions to the above–including cases where a co-signor or alternative credit can make up for traditional repayment history.  (As noted in CMHC’s Newcomer program, “Alternative credit” can include things like proof of satisfactory rent payments and utility payments for 12 months).  Keep in mind, however, that alternative credit is an exception and not a rule.

Speak with a mortgage professional if you have questions about your own unique circumstances.

  1. Another point to mention… I just had a client with a 736 credit score but she is 91 years old and did have 2 tradelines but they haven’t been used in a few years. The Lender likes ‘active” tradelines. Keep using them!

  2. I have a question – say someone does have 2 tradelines but these are inactive because the person is spending within their means and prefers to pay cash. Wouldn’t this suggest prudent financial management? In this situation then, it would be in correct to conclude that this person is managing his finances poorly simply because the tradelines are inactive!
    Any comments would be appreciated.

  3. Paying cash always doesn’t necessarily imply prudence.
    1. The person passes up free rewards miles/points which would not cost an additional cent if credit card bills are paid on time.
    2. The person saves money on interest costs by putting off payment for a month (albeit this point was more relevant in the 1990’s when interest rates were higher).

  4. “I just had a client with a 736 credit score but she is 91 years old and did have 2 tradelines but they haven’t been used in a few years.”
    Heather : I’m just wondering, how can you tell from looking at the credit report if a persons credit cards have not been used in a few years? Thx

    1. If the account balance is $0, no payments in the last few years and no “late payments” or “missing payments” reported would indicate that the tradeline has not been used.

  5. The bottom line is lenders and mortgage insurers don’t rely solely on credit scores. They rely on the 5 C’s of credit. (Capacity, Capital, Collateral, Conditions and Character)
    Will: A credit report highlights ability to manage debt, not monthly expenses so if you pay cash all the time, it provides no credit history on how you manage debt.

  6. Further to Kate’s comment
    How does one truly know if a person is actively using their trade lines? The date of last activity (“DLA” on the bureau) only indicates there was some sort of activity on that particular date. It is a potentially misleading datapoint at best.

  7. Do Mastercard and Visa do their credit scores differently? I applied for a visa and my credit score was 710 and denied me a credit card! I couldn’t believe it. They said because i’ve never had a card and that’s what they didn’t like. I have had one loan in my life for a car which i paid off within a year and that’s it. So I applied for a Mastercard, my credit score came back 760 and they gave me a mastercard with a $5,000 limit. So what gives between Visa and Mastercard?? Can anyone answer this?

  8. In Canada,
    If you look at Visa Acquiring/Issuing -or- Card Acceptance/Card Issuing. You’ll notice something specific about which banks have Visa & which banks have MasterCard.
    RBC/TD/CIBC/SCOTIA = VISA
    BMO/CDN TIRE/MBNA/CAPITAL ONE/HBC etc… = MASTERCARD.
    Visa likes to see banking history, money in savings etc… more of an elite card.
    They can achieve this because something like 45% of credit spending is by Visa. They have the market share of credit spending.
    MasterCard generally has lower limits, 1500 ,3000, 5500… They take on more risk, because their share of the market is like 15-20% card spending. It’s a lot lower so they have more risk in their portfolio.

  9. Today I checked my credit score with Equifax was 620 (low I know)….. i did this before I went for a vehicle loan, they pulled my credit and got a *beacon* score of 523……

    Can you explain that to me….I’m confused!!!

  10. Are you people serious ? Knowing the fraud involved in credit cards; paying cash is definitely, prudent financing. The system does not like it because cash is pretty much untraceable. If there is no debt what is there to pay off. Then there is the fact of tracking you when you use your credit cards. Yes everyone has something to hide!!!! and it should be your private personal life if for no other reason than it is NOBODY ELSE’S BUSINESS. People are brain washed thinking, because you wish to be private and not reveal your personal life to government, or banks, or brokers DOES NOT MAKE YOU A BAD PERSON it makes you PRIVATE. PEOPLE get your head out of the sand and look around you to see what travesties are occurring daily to innocent people. Paying rent in cash, buying something when it is affordable, (when you have the cash) has been a lost necessity in our society for many years. KOODOS to anyone who pays cash and stays out of the disatress credit system. Alternate credit history if far superior to indebtedness.

  11. Not all credit is reported to the same agencies. Equifax and Transunion are two separate entities that create your credit score, and some companies prefer to use one to the other, and some use both.

  12. I just managed to clear off my debt and currently I stand 616 and I am trying to rebuild my credit history. I am not sure as what I am supposed to do to boost it up. I have a 300 secured capital one mastercard that I have had for at least the last 5-6 years. I want to apply for a mortgate at least by the end of the year or early 2017 chatted with an RBC mortage specialist a couple months ago and he suggested that once im done paying off my debts to apply for maybe need credit and I am a little bit scared to do so. Well I guess my question is what banks will ever give credit to a person with a credit score with 616? Will you point me in the right direction please.

    1. Tino,

      You need two credit accounts with bigger limits and a perfect two-year payment history. $300 will not do. You need a limit of $2000 or more on each account. You can get secured VISA/MC cards, department store cards or secured loans to start building your credit.

      If you have a 20% or bigger down payment, a 616 score is not a problem. It just means you will probably pay a higher interest rate.

      Maybe you should keep renting for a while. If you’re scared to apply for a little credit then how are you going to handle a big mortgage?

    2. Tino,

      That $300 card is virtually worthless and useless, and you’re probably paying a lot of interest and fees on it. However to get the maximum benefit from it, only use it for a small monthly payment – say netflix, and pay it off in full every month. Do NOT carry ANY kind of balance on it. This will give you a good utilization ratio and increase your score.

      If you’re not a member of a credit union, I suggest you go out and open an account with one. They are way better than the banks at helping you rebild your credit. Ask them to set you up with a GIC loan – maybe $2500 or $5000 whatever you can comfortably afford – it’s a secured loan in which they will retain the GIC and use it as security while you pay it off. This reports to both bureaus and as long as you make your payments on time as agreed it will improve your score.

      By the time it’s paid off, and if you’ve kept a zero balance on your Capital One card while still using it for that one small monthly bill (to show usage – inactive tradelines don’t help your credit really) within a year you should have a much stronger score and then you can cut up that piece of crap Capital One card and get a real one. You should also be in a better position to apply for a mortgage.

      This assumes you don’t have any R9’s/unpaid collections on your report. Good luck.

    3. I have found if you make payments more often maybe weekly on your credit cards rather than once a month it seems to trigger your credit rating to go up.Not sure if it works all the time but I have seen it work with several of my clients.

  13. I have been working on improving my credit for the last 7 months. I just finished school and started at my new job 3 months ago and make 50k a year. Both equifax and transunion scores around 700. I have a capital one MasterCard with a low limit, under $1000. I pay in full every month and havent missed a payment. I have no debt. My only credit account is my MasterCard. I need higher credit as I will be travelling for work and need to expense hotels etc. I want to apply for a new MasterCard but am afraid to get denied and have that ding on my credit report. Any thoughts?

    1. Hi Jane, How long have you had your credit card? Have you tried asking the bank for a limit increase, given your new job/income? You’ll definitely want to add a second credit account so it can report on your bureau and start building a broader credit track record.

      1. I have only had it for about 7 months. I called the other day to inquire about a credit limit and the informed me that they do not increase limits until after 1 year.

        1. One option is to get a retail store credit card, like Home Depot or Hudsons Bay. They give them out like candy.

          You can also apply for a car loan or RRSP loan to help build your credit quicker.

  14. All this credit score and reporting is to me very
    Disturbing. Who gives the credit bureau the right to collect this info in the first place, who are they actually.
    Entries are kept up to 6 years, that’s just short of a life sentence in some countries.
    If debts are paid off why are they not removed even if the lender sends a letter stating the debt is paid in full.
    Why can’t the reporting lender, who had the entry made in the first place, have the right to have it removed from the indivuals credit report.
    Does anyone have a answer for me

    1. Hi Martin,

      You give the credit agency permission to collect this information. When you apply for credit, your signature to approve the application process on your behalf usually contains a clause that you are aware that any information about you will be provided to the credit agency on the lender’s behalf. There is no way to get approved for credit if you can’t demonstrate your ability to repay current or past cards, lines of credit or loans.

      Six years is hardly a life sentence but necessary as lenders like to see trends over a long period of time. Considering some people can maintain a credit history over 40 years 6 years is a snapshot for most people depending on age. Debts are not removed until the 6 year period has passed if the trade has been closed by either the consumer of the lender. You can pay off a VISA, but unless you close the account it will still report. But that can be a good thing, showing low utilization of revolving debt is a factor in building a strong credit score.

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