How’s your credit score?
At The Mortgage Station, we understand that building and maintaining good credit can be difficult. We also understand that losing a job, not having any credit, becoming ill, paying for emergency expenses, and just plain bad luck can cause Canadians to have bad credit. In addition, we’ve learned that most Canadians are also largely unaware of the “rules of credit.”
In our opinion, bad credit doesn’t make you a bad person, and we feel that it is important for you to know that there are ways to improve your situation, to receive a mortgage loan, and unlock the lifestyle you envision.
So, in this article, we’ll explain why your credit score matters and what options are available for those with poor credit.
How Credit Works
As mentioned in our article, ‘How Credit Works,’ credit scores typically fall between 300 and 900, with most scores falling between 600 and 750. Credit risk assessment companies, such as Equifax or TransUnion, assign these scores to each Canadian.
In Canada, a credit score above 680 is likely to give you the best interest rates, and with scores of 740 and above certain rate discounts may apply, whereas a score below 600 can prevent you from borrowing high ratio mortgages at all. Alternative and/or private lenders are available to provide solutions for these folks.
However, it is always important to remember that all lenders have different opinions on what they perceive as good or bad credit. Therefore, while one lender may refuse to work with you due to your ‘bad credit’, another may be willing to investigate and support your mortgage needs.
Checking Your Credit Score
What Are My Mortgage Loan Options If I Have Bad Credit?
If you have credit between 600 and 700, it is likely that any lender will work with you. However, if you have a score below 600, the large banks in Canada will not consider you for a mortgage loan. In this case, you will need to look for an alternate lender, and if you are working with a Mortgage Broker / private mortgage lender like The Mortgage Station, they will find solutions to meet your needs.
If you are looking to work with a Mortgage Broker, you will need to provide information such as:
- Permission for them to request your Credit Score
- Mortgage Application information
- Debt information
- Income information
You will also likely need to put down a larger down payment as the lender is taking a larger risk in helping someone out who has poor credit. While this may seem overwhelming, putting down a larger down payment will benefit you in the long run – as you may receive a better mortgage rate, and avoid having to pay the high ratio mortgage insurance premium (Ex. CMHC).
Recovering From Bad Credit
If you have poor credit and want to work towards homeownership, it’s important to be patient, as credit scores do not improve dramatically overnight. However, there are a few things you can do to actively improve your credit:
1. Pay credit cards and loans back on time
When your bill payment comes up, be sure to pay at least the minimum amount each month.
2. Reduce or limit outstanding debt as soon as possible
When debt hangs over you it can not only feel awful, it can also impact your chances of receiving another loan in the future.
3. Build strong credit over time – long history of good credit
If you have a strong track record of paying back your loans, your credit will improve. Consistency in your credit is important. Just having credit is also important – without any credit, your options are very limited. So, start building credit by using a credit card for small purchases and by paying it off immediately or on time.
4. Limit the number of accounts you open
People with multiple loan accounts can make lenders nervous. Therefore, we encourage you to limit your number of credit cards and loans. Typically, bank lenders like to see three accounts, with high credit limits of $2,500 or greater, and three years of good history showing.
5. Limit the number of loan options you use
You should also limit the types of loans you use (when possible) – car loans, mortgage loans, credit card loans, etc. If lenders detect that you might be taking on too many loans to possibly pay back, they will likely deem you ‘too high a risk’.
6. Stay employed in a stable job
Lenders want to lend to people who they know will be able to pay them back. If you have a steady, well-paying job, your odds for being trusted with a loan will improve.
7. Work with a private lender
And last but not least, talk to a private mortgage lender like The Mortgage Station – you may have more options than you think!
What If I Can’t Get Approved for a Mortgage Loan?
If you have worked to build your credit and are still unable to receive approval on a mortgage loan, be sure to ask your broker what else you need to do differently.
There are private lenders for people with bad credit. However, building credit takes time, and you may need to rent or explore other living options before purchasing your dream home.
Call The Mortgage Station Today!
Are you looking for a mortgage loan or credit advice and support in Ontario? The team at The Mortgage Station is here to help!