Credit scores can be stressful. They’re an important part of your financial health and certainly make a difference in the options available to you when you’re applying for a mortgage. A high credit score is ideal but you should know many Canadians encounter credit issues and can still buy a home.
That might sound strange, or impossible, especially since it can take time and effort for a credit score to improve. It is possible, however, to secure a mortgage with bad credit. This article will explain how, as well as offer tips for improving your credit. First, let’s take a brief look at how credit works in Canada.
WHAT IS A CREDIT SCORE
There are two major credit bureaus in Canada, Equifax and TransUnion. They assign your score based on your debts and history of paying them off. The credit score itself is a number between 300 and 900. The higher the number, the better your rating and the likelier you are to qualify for the lowest mortgage rates. Specifically, a credit score of 680-900 is good, 600-679 is fair, while under 600 is poor (these numbers may vary slightly depending on the lender).
You can check your credit score by visiting those bureaus, Equifax and TransUnion. There’s a myth floating around that says checking your credit score lowers your credit. This isn’t entirely true. You are able to check your score without impacting your credit, however, once an organization or lending institution checks your credit, then it can temporarily impact your score in a negative way.
BAD CREDIT = HIGHER MORTGAGE RATE
Most lenders won’t approve an application for a person with a credit score under 600. For the lenders that do, the biggest concern is the cost of the mortgage. The chart below illustrates the cost difference between obtaining a mortgage with bad credit vs good credit (based on a $500,000 home with 5% down, amortized over 25 years).
| SCORE | GOOD CREDIT | FAIR CREDIT | POOR CREDIT |
| 5 year fixed | 2.4% | 5.1% | 10%-20% |
| Types of Lenders | Major Banks | Trust Companies | Private Lenders |
| Monthly Payment | $2,188 | $2,901 | $4,419
(at 10%) |
TIPS FOR GETTING A MORTGAGE WITH BAD CREDIT
- SAVE A LARGER DOWN PAYMENT: Truth is, lenders care about more than just your credit score, factors like your income and the size of your down payment have a significant impact. If you’re able to save 20-25% to put down, not only does this tell the lender that you’re now financially stable to save that kind of money, but it means you won’t have to pay CHMC insurance (which is required for all mortgages with less than 20% down).
- IMPROVE YOUR SCORE: It takes time, but if you’re trying to save a higher down payment, then you can work at it from this angle as well. The best ways to improve your credit score are to pay your bills on time, don’t apply for any more new credit (not even store credit). It may also help to examine which credit cards you have open, eliminate the new ones while keeping the oldest cars to maximize the length of your credit
