What is credit score? What are reasons for low credit score?


A credit score is a number assigned to you to give a numerical assessment of your credit history. It is a three-digit number ranging from 300-900, 300 being the worst and 900 the best. This number is assigned by the reporting credit bureaus based on your past credit history. When applying for a loan, this is the number the creditor will look at to help make a determination in whether or not to approve the loan.

There are other considerations such as income and how much debt the consumer already has that are taken into account, but the credit score is the most important aspect of loan approval.

The number is considered to represent the creditworthiness of the consumer and plays a critical role in the loan approval process. It provides the lender with the probability of default of the consumer based on their credit history.

In other words, it gives the lender an idea of how likely the consumer is to pay back a loan if offered. If the consumer’s credit score is low, any loan application is apt to be denied, or at best, it will require a co-signer, (An individual with a good credit score who will sign the loan and guarantee that all payments will be paid. They also have to be approved and are as responsible for the loan as the person they’re co-signing for), or in some cases collateral will need to be provided.

The closer the consumer’s credit score is to 900, the more confidence a lender will have and the more likely they will offer approval of the loan. As mentioned, there are other considerations in the loan process. If the consumer has a credit score of 875 but no income, or judgments and/or liens against them, or any combination thereof, the chances of securing a loan go down drastically.

Each lender has its own procedures for screening a loan application based on a credit score and the credit score number used could vary substantially. The credit bureau does not dictate or recommend what credit score a lender should use as its cutoff point.

Main Reasons For A Low Credit Score

Having a low credit score can block out chances for getting an affordable mortgage on your account for years to come. Whether you have already suffered a blow to your credit history or are looking to build a decent standing to get an attractive Toronto mortgage, the following tips will definitely come in handy.

Read on to find the five main culprits that result in a low credit score and learn how you can avoid them through smart planning and budgeting.

Lack of a Budget Plan

First and foremost, if you do not have budget plan chalked out in advance, it is more than likely that you will have a problem in keeping your payments regular and on time. Tardiness is a factor that most lenders will look for when granting you a mortgage, and missing out on payments will not only make you lose your credibility, but also result in piling up interests and ultimately a significant effect on your credit.

So whether it is your existing mortgages or credit card bills make sure that you keep the timing in check and avoid any outstanding payments to pile up.


Missing out on your loan payments is an instant blow to your credit score. The more payments you miss and the more your defaulting history increases, the more rapidly your credit score buildup tends to decrease. Always keep a check on your monthly payments if you wish to maintain a decent credit standing. If all else fails, consult with individual lenders about alternate payment options.

Maxing Out

Have you maxed out on all your credit cards and now spending hundreds of dollars on the interest? Exceeding your pre-defined credit limit often leads to a lowering in your credit score, which ultimately results in higher mortgage rates for you in the future.

Too Much Credit!

Every time you sign up for a loan, be it for your credit card, home mortgage or car, the lender inquiries cause a certain deduction in your score. Also, the more loans you have on your account, the more difficult it will be to manage them. And this mismanagement often leads to defaulting and missing out on payments which ultimately point towards a lower credit score.

Former History of Bankruptcy or Foreclosure

A bankruptcy or foreclosure on your account can cause a severe blow to your credit history for years to come. Typically, bankruptcy stays on your credit for a period of seven years, which may make it difficult for several people to get their hands on an affordable second mortgage loan again. However, there are several ways to repair your credit after bankruptcy and with the right strategy and planning you can definitely get a Toronto mortgage plan that suits best to your needs.

With mortgage rates at their record lowest at the moment, now is the best time to apply for a mortgage plan. Discuss your options with a broker today even if your credit score isn’t looking too good. Best of luck!