Low credit scores are often an obstacle that prevents Canadians from getting into new homes. Whether or not your credit issues are recent or in the past, it can be a tough challenge to face when you’re looking at purchasing. However, it’s not impossible to get a mortgage when your credit is less than perfect.
What Does it Mean to Have ‘Bad Credit’?
It’s challenging to maintain good credit, but at what point is a credit score considered ‘good’ or ‘bad’? In Canada, credit scores range from 300-900, with most scores between 600-750. While scores above 680 will get you the best interest rates, scores under 600 can be a roadblock to getting a mortgage.
Getting a Mortgage with Poor Credit
Improving your credit score is a matter of strategy and consistency. Luckily, it is possible to get a mortgage with a lower credit score – it’s just more challenging. There are a few different options when it comes to getting a mortgage with poor credit:
- The best first step to take is to contact a mortgage broker with experience helping homeowners with low credit scores get into homes. This person will help you improve your credit score, negotiate on your behalf with lenders, and present you with multiple competitive options.
- Improve your credit over time. If you’re planning on getting a mortgage in a few years, now is a great time to talk to an experienced mortgage broker for more information!
- Use a co-signer or guarantor for your mortgage. Co-signers and guarantors are both ways to guarantee your payments – that is, they pick up the payments if you default.
- Save up for a larger down payment. While the minimum down payment in Canada is 5%, saving 10% or even 20% tells a lender that despite poor credit, you’re financially stable enough to own a home.
How Can You Improve Your Credit Score?
When you’re trying to improve your credit score, be patient; Rome wasn’t built in a day, and your credit score won’t drastically improve overnight. With that being said, there are multiple ways to increase your credit score:
- Pay your bills on time. You should never miss a payment. Even if you can’t pay it in full, discuss getting a payment plan with your provider. One of the first steps I take with clients is determining where debt is and how we can ensure your payments are being made on time.
- Limit the number of accounts you open. When lenders see people with too many loan accounts open, they consider it a red flag. We’ll discuss a strategy to ensure you get what you need, but with fewer accounts and debtors.
- Reduce your outstanding debt. Debt is a heavy weight to carry on your shoulders, and while you may not be able to pay it off in full, even just reducing the amount can impact your credit score. One option we can look at is debt consolidation, which can help lower your payments and interest rates on outstanding debt.
Finding the Right Mortgage Broker
Finding a mortgage broker who can understand your situation and direct you to viable solutions can be a determining factor in whether you can get a mortgage. No matter what your credit score looks like, an experienced broker can help you find solutions that will get you into a home sooner. Contact me to find out how I’ve helped others in similar situations!