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credit scores

Credit Scores Improving, Says CMHC

New data from CMHC shows average credit scores of mortgage holders across the country are continuing to rise.

A full 80.7% of mortgages in Canada are held by borrowers with a “very good” (700-749) or “excellent” (750+) credit score, CMHC says.

That’s up from 78.2% in 2012. Meanwhile, the percentage of mortgage holders with “fair” or “poor” credit scores is continuing to trend lower, reaching 10.2% this quarter, down from 11.8% five years ago.

Mortgage Holders Vs. Non-Mortgage Holders

“Overall, mortgage holders tend to have better credit scores than other consumers,” the CMHC report noted.

The percentage of non-mortgage holders with a fair or poor credit score was 3.9 percentage points higher compared to those with a mortgage. CMHC added that this gap has been widening since 2014.

“On the lower end of the spectrum, we find that 15.2% of consumers without a mortgage had a poor or fair credit score in the first quarter of 2017, which is 5 percentage points higher than consumers with a mortgage.”

A fair credit score is 600-659 while a poor credit rating is anything less than 599.

This data is good news in an environment of rising interest rates and may alleviate concerns about mortgage holders’ ability to make their payments.

“The recently rising share of borrowers with high credit scores is welcome news for the mortgage insurance industry concerned with possible defaults due to overpriced properties and rising mortgage rates,” said Novak Jankovic, an former CMHC economist specializing in the housing markets and mortgage finance.

“However, given that mortgage defaults peak five to seven years after mortgages are issued, the really important question is what was the quality of loans underwritten in the 2010—2012 period?” he added. “What were the borrower score ranges then and whether these borrowers are more vulnerable to the seemingly inevitable future rise in interest rates?”

Other findings from the CMHC data include:

  • The only two metropolitan areas that had mortgage holders with an average credit score of “very good” or “excellent” lower than the national average were Edmonton and Calgary, at 77.4% and 79.6%, respectively.
  • The share of mortgage holders in the two lowest credit score ranges remains more elevated in the oil-rich markets of Edmonton and Calgary.
  • Delinquency rates (where payments were more than 90 days in arrears) in Q4—the most recent date for which data is available—were highest in New Brunswick (0.79%) and Nova Scotia (0.75%), and lowest in Ontario (0.19%), B.C. (0.25%) and Manitoba (0.35%).
  • Toronto and Vancouver had delinquency rates lower than the provincial averages, at (0.12%) and (0.15%), respectively.