What is a good credit score in Canada for a mortgage?
Many young Canadians dream about purchasing a home. Apart from the down payment and closing costs, it is essential to find an affordable mortgage option. A good credit score allows you to access the best mortgage options at low-interest rates. Are you worried about finding a mortgage with a bad credit score? We will discuss the mortgage options available to borrowers with a bad credit score.
Why is your credit score so important?
Credit scores in Canada are a representation of your financial history and, they range from 300 up to 900. A credit score allows lenders to assess your creditworthiness. Borrowers with high credit scores are considered low-risk applicants and, they stand a higher chance of getting their application approved.
Relation between credit scores and mortgage approval
If you have an excellent credit score, lenders are willing to approve your mortgage application because you do not pose a high risk of defaulting on your payments. The lower your credit score, the higher the risk for the lenders. Lenders are likely to charge you a high-interest rate to compensate for the risk they are taking.
What is a good credit score for a mortgage in Canada?
There is no minimum credit score requirement in Canada for getting a mortgage. But with a bad credit score, you may face challenges in finding a lender and also pay a higher interest rate. Below are indicative credit score ranges that can help you understand the available mortgage options.
660-712
This is considered an acceptable credit score. You can find a mortgage but, the interest rates may be high.
713-740
This is a good credit score with which you can find a variety of lenders and low-interest rates.
Over 741
This is an excellent credit score with which you can find the best mortgage interest rates.
If your credit score is less than 640, it will be difficult for you to find a regular mortgage or a lender. Also, if your credit score is between 300 and 574, you are considered a high-risk borrower. If you can find a lender, they may charge you a very high interest rate.
Maintaining your credit score:
You can take the following measures to maintain a good credit score:
- Check your credit score before you start looking for a house. You can rectify any issues that may hamper your chances of approval.
- Maintain a low debt-income ratio by not applying for loans other than your mortgage. Get rid of any large debts you have like, credit card bills or an unsecured loan. Large loans can contribute to maintaining a good credit score only if you make timely payments.
- Avoid submitting multiple mortgage applications at the same time. Multiple lenders pulling your credit report can hamper your score.
Getting a mortgage with a bad credit score
If your credit score has not increased significantly, you can still apply for a mortgage with a bad credit score. To increase your chances of approval, you can try the following:
Make a large down payment
A good credit score is not the only way to prove your creditworthiness. You can achieve the same goal by making a large down payment. If you make a down payment of 20% or more, your chances of finding a great lender and low-interest rates increase considerably.
Find a co-signer
You can get a co-signer for your application if you are unable to save a large down payment. The co-signer should have a good credit score and be financially sound. A co-signer is responsible for making monthly payments if you don’t.