Credit Scores and Mortgages

“What is a good credit score in Canada for a mortgage?”

via Canadian Real Estate Magazine.

“…Before applying for a mortgage pre-approval, you should check your credit score in order to ensure you can be approved for a mortgage in the first place. The bottom line is, the lower your credit score is, the more consequences you’re likely to experience. This is why, even if it may take longer than expected, you may want to hold off on buying a house until your low credit score is resolved and we’ll get into why below.

Credit score ranges

Having bad credit can not only make it difficult to obtain a mortgage loan, but it can also raise the amount of interest you pay on a loan. Poor credit can deem you a ‘high-risk lender’ by financial institutions if you seem more likely to default on mortgage payments.

In Canada, this is what your credit score can mean (as it will vary per lender):

Poor (300-574)

You may not actually get approved for a mortgage by a traditional lender with a poor credit score, however, every lender will have a different set of requirements. If a lender does approve you, your interest rate will be much higher and if you default on too many mortgage payments, you could lose your home. And it’s not just getting a mortgage that will be an issue. You’ll also find it difficult to get approved for lines of credit or other personal loans.

Below Average (575-659)

Even though your credit score isn’t ‘poor’, you may still have to pay higher interest fees with a below-average credit score.

Fair or Average (660-689)

Your payment history may be a little rocky but not quite as bad as those with a lower credit score, but lenders may still deem you riskier than others, so you can still expect higher interest rates.

Good (690-740)

With a good credit score and a good reputation with your credit bureau, you won’t have trouble getting a mortgage or other types of loans like a line of credit, personal loan, or car loan. If you pay off your debts like your credit cards on time every time, it won’t take long to build a good credit score. Plus, with a higher credit score, you’ll have lower interest rates.

Excellent (741-900)

With an excellent credit history and score, lenders won’t have any hesitation when it comes to approving you for a mortgage loan. A perfect credit score is rare, but definitely not impossible. The higher the credit bureaus rank your score, the lower the interest rate you’ll have to pay, so it’s worth trying to improve your score before applying.

So … can you get a mortgage with a credit score of 600?

Does a poor credit score mean that you won’t be able to obtain a mortgage? Not necessarily. The loan may just have to come from somewhere other than a traditional lender (bank). Luckily in Canada, there are other (non-traditional) credit unions you can turn to. These types of places can help people with mortgage approval, especially if they can’t get it at traditional credit bureaus, like TD Bank, RBC, BMO, etc. They’re typically owned by individuals and are much more forgiving for people with lower credit scores and a lower income. They can offer lower interest rates and just lower fees in general.

There are also non-bank lenders that can accommodate your specific needs, like Loans Canada, Easy Financial, Fairstone, and many more. We know you’ve probably asked the question ‘is a non-traditional lender safe?’ before, and yes, they are safe and secure. Both traditional and non-traditional lenders must comply with the same rules. In fact, in July 2019 in Canada, it was reported that non-bank lenders were the go-to for mortgages rather than traditional lenders. And it’s important to note that these mortgage loans weren’t just for those with bad credit scores. They can be a great place to lean on for those who are self-employed, single, going through a divorce, have health problems, and other issues.

How a credit score is determined

If you’re trying to buy a home in Canada, there are a few factors you should become familiar with when it comes to your credit history before applying for a mortgage. You may want to improve your credit score first so you have a better chance at obtaining the mortgage loan amount you want.

Your credit score isn’t just based on paying bills on time (although that’s largely where your score comes from). Other factors come into play, too, such as:

  • How long you’ve had a credit history
  • Other loans under your name (car, personal, line of credit, etc.)
  • Your balance-to-credit-limit (the available credit you have compared to the maximum credit limit) Any history of bankruptcy (which can stay on your account for several years)
  • How often you miss payments
  • Your current debt
  • How many credit card accounts you’ve opened
  • The number of credit inquiries (yes, every time an application is submitted for a credit score check, this will slightly impact your score)
  • How to check your credit score

Every financial lender will have a different credit score method and means of checking your credit report. Some may offer free credit score checks whereas others may require you to apply for one. You can also rely on other companies like Equifax® to send you regular monthly credit reports so you can stay on top of your credit score, especially if you’re hoping to improve it for mortgage approval purposes…”

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