What Constitutes a Bad Credit Score?

A bad credit score doesn’t necessarily end your homeownership dreams, but understanding your credit situation is crucial.

In Canada, credit scores range from 300 to 900, with higher scores being more favorable. According to Sialtsis, most lenders require a minimum score of 680 for mortgages. Scores below this threshold are considered bad, with those under 600 being the worst.

You can obtain your complete credit history from Equifax or TransUnion for free once a year. For just the credit score, many online banking services or apps provide regular updates.

Factors That Lower Your Credit Score

Missed payments can "bruise" your credit, but high balances can also negatively affect your score. Even if you pay on time, consistently carrying high balances can impact your credit. Sialtsis recommends keeping your credit card balance below 60%, ideally under 50%, of the limit.

Mortgage Brokers vs. Banks

If your credit is bruised, traditional banks may not be able to help. Instead, contact a mortgage broker or professional who can shop around for rates and options, even for those with bad credit.

Some brokers specialize in helping clients with bad credit, seeking approval from alternative lenders when banks decline.

Improving Your Credit Score

Improving your credit score is crucial, especially if you're considering buying a home. Paying bills on time has the most significant impact. Setting up automatic payments can help ensure timely payments, even if it’s just the minimum amount.

Timeframe for Credit Repair

Repairing your credit can take years. Lenders typically look for two years of clean credit history, meaning timely payments, low balances, and no collection items.

No Credit History or New to Canada?

For newcomers or those without a credit history, Sialtsis recommends getting a secured credit card. This type of card works like a debit card but helps build credit as you prove responsible borrowing behavior. Over time, your credit score will improve, opening up more borrowing options, including mortgages.

Lenders also prefer borrowers with at least two different credit methods, such as a credit card and a line of credit, with a minimum limit of $2,500 each, to demonstrate responsibility.

Source: CTV news (https://www.ctvnews.ca/business/what-counts-as-a-bad-credit-score-and-can-you-still-get-a-mortgage-1.6938696)