Your credit score has the power to impact some of your most crucial financial decisions — it can mean either approval or rejection for a loan, and it can also factor into how much interest you’re charged. So, it goes without saying that if you want to qualify for the best mortgage rates, you need to have a good credit score.
Having a healthy credit score is a great way of demonstrating your financial stability to lenders. It shows that you’re a low risk, and that you are well equipped to pay your bills in time.
Even if you have a bad credit score, you can still get approved for a mortgage, with the exception that you’ll be charged high interest rates — making debt more expensive. However, it’s worth mentioning that there’s a lot you can do to improve your score.
So why give up on the house of your dreams and settle for less, when you can take the right measures to avoid the problem?
In this guide, we’ll throw light on just how good your credit score needs to be in order to get approval for a mortgage in Canada, and how to get the best rates. We’ll also briefly discuss how you can improve your credit score.
Canadian Credit Score Benchmarks
Credit scores in Canada range from 300 all the way up to 900. This score range is categorized into brackets which can be used to gauge how good or bad your score is. These numbers are suggested by popular consumer credit reporting agencies.
According to TransUnion and Equifax:
300 to 574: Bad
575 to 659: Needs Improvement
660 to 724: Above Average
725 to 759: Good
760 and above: Excellent
Note that these numbers are rather conservative; about 20% of Canadians score below 600. Anything above 700 is generally considered healthy, and the most attractive loan options are reserved for those who score above 760.
Minimum Credit Score Required for Mortgage Approval
To qualify for a home loan, the minimum required credit score is 600. Score anything less than that, and most Canadian banks will probably reject your application for a mortgage.
It has been observed that a credit score of 725 or higher is the best option because you can get the lowest interest rates. This way, access to debt is cheaper and you can save a lot of money in the long run.
Qualifying for the Best Available Mortgage Rates
Your credit score takes into account your credit history which helps lenders in determining payable interest rate if your application gets approved. A higher credit score can mean favorable and affordable interest rates.
To avail the absolute best rates on your mortgage loan, it is advisable to keep your score anywhere north of 750.
Getting a Home Loan with Bad Credit
Even though bad credit can hinder your ability to get a mortgage, it’s worth mentioning that you have other options available to you. The only downside is that you’ll end up paying more in interest. The most recommended course of action is to gradually keep improving your credit score until you qualify for a reasonably cheap interest rate.
If you don’t want to wait and have your mind set on going ahead anyway, here are some things you can do to get a home loan with bad credit:
Turn Towards Private Lenders or FinTech Companies
Traditional banks aren’t the only financial institutions that can lend you money — alternative lenders such as FinTech companies are making waves in the financing world thanks to quick, adaptable processes and leniency when it comes to credit scores.
Because banks have strict standards in place to minimize risk and are subject to a long list of federal regulations, they tend to be slower and have stricter loan options. Private lenders like Happy Loan, on the other hand, are known for their easier approval processes, flexibility and customizable loan options.
Make a Larger Down Payment
A great way of proving your financial stability without being backed by a good credit score is to make a large down payment — over 20% of your total loan amount. Doing this will give you more leverage when working with banks.
Apply for a Joint Mortgage
If you don’t have a good credit score but know someone who does, and if they’re willing to vouch for you by being a co-signer, your chances of securing a mortgage without having to pay a large down payment will increase.
Here’s how the bank sees it when you get a joint mortgage with a co-signer: if you fail to pay your mortgage, the co-signer promises to pay the bank on your behalf.
Tips for Improving Your Credit Score
In all honesty, improving your credit isn’t as difficult as you might think. All you have to do is take a few key steps consistently, with responsibility and discipline. The rest will follow suit.
Here are some of the things you can do to improve your credit score:
Paying Back Debts in Time
To improve your credit score, the first thing you should do is clear off your old debts. You should limit the use of credit cards and opt for debt consolidation. Be sure not to miss any payments and monitor your credit report for discrepancies regularly.
Gradually your credit score will improve. To know more, we encourage you to read our detailed guide to improving your credit score.
Underutilize Your Credit Limit
Lenders not only look at your credit history but also your over overall credit usage with respect to how much of it you have available. For example, if you’re consistently maxing out your credit card every month, that’s going to hurt your score; even if you pay your balances down on time.
One way to navigate this problem is to either use less of your total available credit or to increase your credit limit so that you can continue using it the same way, without hurting your score.
Bad Credit? No Problem
At Happy Loan we don’t look at your credit score — bad credit is ok. We understand your situation and we’ll help solve your problem. If you need access to emergency cash as quickly and efficiently as possible, reach out today. Our process is simple.