How important is a good credit score in order to obtain a mortgage?

Your credit score is an important factor that lenders consider when you apply for a mortgage.

A good credit score shows that you have a history of responsible credit management, which gives lenders confidence in your ability to repay a loan.

Generally, a credit score of 680 or higher is considered good in Canada, although some lenders may have higher and/or sometimes lower requirements. 

If you have a lower credit score, it may be more difficult to obtain a mortgage, or you may need to pay a higher interest rate or make a larger down payment. 

If you have a bad credit score in Canada, there are several steps you can take to improve it. Here are some of the most effective strategies:

• Check your credit report: Obtain a copy of your credit report from either Equifax or TransUnion. Review it carefully for errors or inaccuracies, and report any issues you find to the credit bureau.
• Pay your bills on time: Late payments are one of the biggest factors that can damage your credit score. Make sure to pay your bills on time every month. 
• Reduce your debt: High levels of debt can also hurt your credit score. Focus on paying down your outstanding balances, especially on credit cards, which tend to have higher interest rates.
• Avoid opening new credit accounts: Applying for new credit can lower your credit score, so try to avoid opening new credit accounts unless it's absolutely necessary.
• Use credit responsibly: Once you have paid down your debt, use credit responsibly to rebuild your credit score. This means using credit cards and other forms of credit sparingly and paying off the balances in full each month.

Improving your credit score takes time and effort, but by following these steps, you can gradually improve your creditworthiness and increase your chances of getting approved for a mortgage or other types of loans in the future.

The amount of time it takes to improve a bad credit score can vary depending on several factors, including the severity of the negative information on your credit report, and how quickly you take steps to improve your creditworthiness.

Generally speaking, if you take steps to improve your credit score, you should start to see some positive changes within a few months. For example, if you pay down your credit card balances or make all of your bill payments on time, these actions can help boost your credit score relatively quickly.

However, if you have more severe negative information on your credit report, such as a history of missed payments or a bankruptcy, it may take longer to see improvements in your credit score. 

It is important to be patient and persistent in your efforts to improve your credit score. 

If you have a bad credit score, and still wish to obtain a mortgage, here are some tips: 

• Work with a mortgage broker: They can help you find lenders who are willing to work with borrowers who have bad credit. Brokers have access to a network of lenders and can help you compare rates and terms.
• Consider a higher down payment: Some lenders may be more willing to approve your mortgage application if you are able to make a larger down payment. A higher down payment can reduce the lender's risk and improve your chances of being approved.
• Get a co-signer: If you have a family member or friend with good credit who is willing to co-sign your mortgage application, this can increase your chances of being approved.

There are still more options, but these can be costlier: 

• Private lenders: Private lenders are individuals or companies who provide loans that are not offered by traditional banks or credit unions. Private lenders may be more flexible than traditional lenders and may be willing to work with borrowers who have bad credit. However, these loans may come with higher interest rates and fees.
• Rent-to-own: In a rent-to-own agreement, you rent a property with the option to purchase it at the end of the rental period. This can be a good option if you have bad credit and cannot qualify for a mortgage right away.

It is important to be cautious when considering mortgage options if you have a bad credit score. Be sure to carefully review the terms and conditions of any loan offer, including the interest rate, fees, and repayment terms. 

If you find yourself in a bind, please contact us, and we will do our best to find a solution that is right for you.

Fred and Martin – Mortgages