Homeownership continues to be a dream for most Canadians, but this goal is often out of reach for many who still struggle with poor credit scores. Most conventional lenders require good credit to buy a house, though there are alternative lenders who offer mortgages to those with low credit scores. However, these lenders often charge higher rates and fees than banks, making them a more expensive option.
As such, it’s in your best interest to build your credit before trying to buy a house.
Key Points
| What credit score do you need to get a mortgage? | Having good credit (660+) can make it much easier to get approved for a mortgage and secure a lower interest rate. If you have bad credit, you may need to work with a private or alternative lender to get a mortgage. That said, you may still qualify with a score less than 660 if you’re taking out an insured mortgage. |
| How long does it take to build credit? | If you’re building credit from scratch or are looking to repair bad credit, it can take a few months or longer of diligent financial habits. |
What Credit Score Do You Need To Buy A House In Canada?
Generally, lenders require a minimum credit score of 660. However, depending on the lender, the minimum can be anywhere between 660 and 680.
The minimum credit score needed to get approved for a mortgage can also vary depending on the strength of your finances. For example, your down payment amount, income level, and debt level are all factors that can influence the credit score requirement for some lenders.
So, if you have strong finances, you may be able to get away with a slightly lower credit score to get a mortgage.
Can You Buy A House With Bad Credit?
While there are plenty of things that you can and should do to give your credit score a boost, it’s still possible to buy a home with bad credit.
Conventional lenders, like banks and federally-regulated credit unions, may likely reject your mortgage application if your credit score is under 680.
However, there are other lenders who work exclusively with borrowers who have bad credit. These include alternative and private lenders. Do note that at least a 20% down payment may be required.
How To Build Credit Quickly To Buy A House
Before applying for a mortgage, it’s in your best interests to make sure your credit is healthy. If it isn’t, consider taking some time to fix your credit score to boost your odds of mortgage approval at an affordable interest rate.
Here are some ways you can fix your credit fast to buy a house:
Fix Any Errors On Your Credit Report
One of the first things you should do is pull your credit report. Understanding your financial and credit position can help you during your mortgage search. Moreover, obtaining a copy of your credit report will give you the chance to see if there are any errors in the report that may be unfairly dragging your credit score down.
If you notice mistakes, be sure to dispute them right away. Having these errors investigated and rectified may result in a higher credit score.
Where Can You Check Your Credit In Canada?
Both Equifax and TransUnion offer consumers their credit reports for free (TransUnion refers to this as a Consumer Disclosure). Equifax also offers free credit scores to all Canadians, while TransUnion offers them for free in Quebec.
There are several other third-party providers that offer free credit scores and reports:
| Cost | Credit Score | Credit Report | ||
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | Visit Site |
 | Free | Yes | Yes | - |
Pay Your Bills On Time
Your payment history often accounts for approximately 35% of your credit score calculation. So it goes without saying that you should make every effort to pay all of your bills on time and in full. Missed payments can not only negatively affect your credit scores, but can lead to late payment fees and accrued interest.
By meeting your payment deadlines at each billing cycle, you can build a positive payment history, which can help improve your credit scores.
Leave Old Credit Accounts Open
If you have old credit cards that you’re not using all the time, don’t close them just yet. Many people wrongly believe that credit cards that are not being used on a regular basis should be closed out. However, doing so can actually be bad for your credit scores.
Cancelling an old credit card can decrease the total age of your credit history. If you really want to streamline your accounts, consider closing your new credit card and keeping the oldest ones active, especially ones without any account fees.
Don’t Open New Credit Cards
While you don’t want to close out old credit accounts, you also don’t want to open too many new ones. Doing so can cause your credit scores to dip. As mentioned, the age of your credit accounts can impact your credit scores, and opening new accounts can reduce the total age of your credit accounts.
Plus, applying for new credit means more hard inquiries on your credit report. When a lender pulls your credit report, your credit score can dip, though usually temporarily. However, multiple hard inquiries within a short time period can be more detrimental to your credit score, so try to avoid applying for new credit while trying to improve your credit health.
Don’t Spend Your Entire Credit Limit
Your debt-to-credit ratio is the amount you spend relative to your credit limit. This ratio generally accounts for around 30% of your credit score. High ratios may negatively impact your credit score.
Ideally, lenders like to see a debt-to-credit ratio of no more than 30%, as it shows that you haven’t overextended yourself and can manage your debt load responsibly.
Why You Should Pay More Than The Minimum Balance
Many consumers only pay the minimum balance on their credit cards. While this may be a better option than completely missing a payment, only paying the minimum balance may lead to higher debt. Not paying the full outstanding balance of your credit cards could then lead to a higher debt-to-credit ratio, which may have a negative effect on your credit score.
Products To Help You Build Your Credit To Buy A Home
The following options are useful if you’re unable to access traditional credit to build your credit profile:
Get A Secured Credit Card
Having a credit card and making payments on time each month is a great way to help build good credit. But if your credit score is on the low end or you have not yet established any credit at all, it can be nearly impossible to get approved for a traditional unsecured credit card. In this case, a secured credit card may be a good option.
Secured credit cards are easier to get approved for and can help you build credit the same way an unsecured credit card can. All you need to do is put down a deposit, after which you can use the card for purchases. With every timely payment you make, you can help increase your credit scores.
Here are some great secured credit card options available to consider:
| Annual Fee | Interest Rates | Min. Deposit | |
| Neo Secured Credit | $0 | - 19.99% - 26.99% - QC: 19.99%-24.99% | $50 |
| Capital One® Guaranteed Secured Mastercard® | $59 | 19.8% | $75 or $300 |
| Home Trust Secured Visa Card | 0$ or $59 | - 19.99% (no annual fee) - 14.90% (with annual fee) | $500 |
| Vancity enviro™ Secured Visa* card | $0 - $395 | 11.25% or 19.50 % | $500 |
Save And Build Your Credit With A Credit Builder Loan
A credit builder loan is a type of loan that is specifically designed to help you build credit, similar to a secured credit card. This loan does not provide upfront cash. Instead, you make monthly or bi-weekly payments to the lender, who will store it in a secured account.
At the end of the loan term, the lender will release your funds to you, minus any interest and fees.
A credit builder loan is a good way for you to build credit while saving money. Each payment you make will help you build a healthy payment history. This can help improve your credit and will show lenders that you’re able to make credit payments on time.
Tips On Increasing Your Ability To Buy A House
- Find An Alternative Or Private Mortgage Lender — If you have bad credit, private and alternative lenders may be a better option. These lenders place more weight on other factors, such as income, debt and job stability.
- Get A Co-Signer — A co-signer is someone with good credit and strong finances who agrees to take over your bill payments if you fail to. This reduces the lender’s risk, and may help increase your chances of loan approval.
- Don’t Take Out Additional Loans — If you’re planning on buying a house, adding more debt to your financial profile isn’t a good idea. The lower your overall debt, the healthier your overall financial profile will look.
Can You Buy A House With Bad Credit And A Low Income?
It’s possible to buy a home with bad credit and low income, though it’s extremely difficult, as you will face many obstacles.
For starters, it won’t be easy to come up with much of a down payment if your income is low. Not earning a high income will make it more difficult to keep your debt-to-income ratio low enough to qualify for a mortgage. Combining that with a bad credit score will make things that much more challenging.
Your best bet is to take steps to improve your credit, which will make it easier to get approved for a mortgage even with a low income. However, you may also want to make some changes to help give your income a boost.
What Do Lenders Look At For Mortgage Approval?
In addition to your credit score, lenders look at the following key factors when determining whether to approve your mortgage application:
- Your income. Lenders want to make sure that you earn enough to cover both your existing debt and your new mortgage payments. They also care about the stability of your income (ie. salaried versus self-employed), so they want to ensure that your income is predictable and reliable enough to cover each mortgage payment.
- Your debt-to-income (DTI) ratio. Your DTI provides lenders with a more accurate picture of your income relative to your debts. Ideally, your DTI should be no higher than 44%. Anything above this threshold could mean that your income may be stretched too thin given your debts.
- Down payment and deposit. A mortgage will help cover the majority of the home’s purchase price, but you’ll still need to come up with some funds on your own. Your home deposit will show the seller and lender that you’re financially capable of making a home purchase, while a sizable down payment will show the lender that you’re a less risky borrower.
- Cash for closing costs. Closing costs can add up to be anywhere from 1.5% to 4% of the purchase price. These costs must be covered at the time of closing, so you’ll need to have the liquid cash available to seal the deal.
Final Thoughts
Having a healthy income and good credit is your best bet for improving your odds of mortgage approval. That said, there are many consumers out there who don’t have a high credit score but still need a mortgage to buy a house. If you have bad credit, take steps to improve it before applying. If you cannot wait, look to alternative or private lenders who work exclusively with low-credit borrowers.
