A lot of Canadians have a hard time when it comes to find a mortgage when they have a bad credit history. A lot of life circumstances can influence on your credit score, for example, a job loss, bankruptcy and an unexpected illness. It takes some time to recover from a bad credit history, which can delay the dream of purchasing a home.
Waiting may not be an option for some individuals, or some just don’t want o wait until their lives are back on track and get a mortgage. The good news is that are options available for those in this situation. Here are some tips on how to get a bad credit mortgage.
Credit Score in Canada
First of all, I will explain what is a credit score and why they are so important when it comes to applying for a mortgage. Credit score is a number between 300-900 that is assigned by 2 majors bureaus in Canada, which are Equifax and TransUnion. Basically, these two bureaus put together a history of your financial past transactions, and how you handled available credit in the past. This report will result in a three-digit number, between 300-900. The higher the number, the higher the chances of being considered for a mortgage. Also, a high credit score helps you qualify for better mortgage rates.
In order to find out your credit score, there are two ways available. One, you can access Equifax or TransUnion directly and pay for your credit score. Second, you can find online websites that provide your credit scores for free. Once you know your credit score, you will know if you will be able to able to qualify for a traditional mortgage or a bad credit mortgage.
So, let’s say you checked your credit score and they don’t look so good. There is no need to worry, since there are ways to improve your credit score or even, apply for a bad credit mortgage. A higher credit score is important in order to secure a lower mortgage rate, which leads to lower mortgage monthly payments.
How to improve your credit score
So, by now it is pretty clear how having a good credit score is important to secure a low rate and improve your chances of getting approved for a mortgage. With that in mind, I will give you some tips on how to improve your credit score. To start with, pay your bills on time. That includes credit card statements, utilities, phone bills, etc. If by any chance you can’t pay the bill in full, at least try to pay the minimum amount. Ignoring the bill completely can be very harmful to your credit score, since it can cause you to go into delinquency.
Another important tip is stay under your credit limit. Try to spend up to 30% only of your available credit limit. Staying below the credit limit shows to credit reporting agencies that you are a responsible spender and it will look good on your credit score.
Also, try to keep your old accounts, since the length of your credit history matters. If you cancel a credit card, for example, removes it from the file, and makes your credit history shorter. If you apply those tips, it should take a few months to increase your credit score.
Bad credit lenders
To get a mortgage approved in Canada by a traditional lender, you will need 600 in your credit score. Most A lenders in Canada will turn down your mortgage application if your credit score is below 600.
If you don’t meet the bank’s criteria, you can look into bad credit mortgages and private lenders. Those types of mortgage are specifically for individuals with lower credit scores. Keep in mind that, the lower your credit score, the riskier will be for the lender that is willing to lend you money. So, because of that, the fees and rates will also be higher than the traditional lenders.
If you have a bad credit score, you can still qualify for a bad credit mortgage, but keep in mind that the monthly payments will be higher. It is also important to take a self assessment and check your spending habits and where you can improve, in order to get a better credit score. Taking the time to see where you can improve your finances and spending habits will allow you to improve your credit score and access lower mortgage rates.
If you are looking to purchase or refinance a property over the next few months, contact us today at 877-296-2696 or email us at firstname.lastname@example.org.