An applicant has a credit score of 780 but their credit bureau report shows a high credit utilization ratio (CUR) across all their credit cards, consistently above 85% for the past 6 months, despite making minimum payments on time. There are no other derogatory marks. What is the most likely implication of this credit profile for a Canadian mortgage application?

Question: An applicant has a credit score of 780 but their credit bureau report shows a high credit utilization ratio (CUR) across all their credit cards, consistently above 85% for the past 6 months, despite making minimum payments on time. There are no other derogatory marks. What is the most likely implication of this credit profile for a Canadian mortgage application?

Answer options:

• The high credit score will fully offset the high CUR, resulting in an immediate approval for prime rates.
• Lenders will view the applicant as highly disciplined due to on-time payments, overlooking the high CUR. ✅ The high CUR, despite the excellent score, will significantly increase the perceived risk, potentially leading to higher interest rates, lower loan amounts, or even denial by prime lenders, as it indicates a reliance on debt.
• The applicant will only be approved for a mortgage if they can immediately pay down all credit card balances to under 30% utilization.

Correct answer: The high CUR, despite the excellent score, will significantly increase the perceived risk, potentially leading to higher interest rates, lower loan amounts, or even denial by prime lenders, as it indicates a reliance on debt.

Explanation: While a high credit score is positive, a consistently high credit utilization ratio (CUR) signals to lenders that an applicant is heavily reliant on credit and may be at risk of overextension. This can increase a lender's perceived risk, potentially leading to less favourable mortgage terms or even rejection from prime lenders, regardless of on-time minimum payments.