Your credit score can mean the difference between not only being approved or declined for a mortgage, but it can affect your mortgage interest rate, the type of mortgages available, and the mortgage lenders that you can choose from.
Credit scores in Canada is a number on a scale between 300 and 900. Generally, a credit score above 660 is good, above 725 is very good, and above 760 is excellent. Credit scores below 600 are considered poor.
In 2019, the average credit score of mortgage holders in Canada was 757, while the average credit score for those without a mortgage was 746.
|Credit Score||Share of Outstanding Mortgages|
|Poor (Below 600)||2.3%|
|Very Good (700-749)||16.2%|
Major banks generally require a credit score above 600. Private mortgage lenders might not have any credit score requirements, depending on the lender. Second mortgages and home equity line of credits (HELOCs) also require good credit scores. Having a low credit score may mean that your application is denied, your mortgage rate can be higher, or the amount that you can borrow may be reduced.
You will need a credit score above 680 if you are looking to get an insured mortgage. Mortgage default insurance is required for high ratio mortgages, which is for those with a down payment less than 20%, or your mortgage lender may require mortgage insurance even if you make a greater down payment due to your financial situation.
Mortgage default insurance is usually issued by the Canada Mortgage and Housing Corporation (CMHC). CMHC mortgage default insurance requires you or a co-borrower to have a credit score of at least 680. Other private mortgage insurance providers include Canada Guaranty and Genworth.
A good credit score to have for a mortgage in Canada is above 680, as it opens up options. Having more options available to you means that you have more control when comparison shopping for a mortgage. Major banks, such as RBC and TD, can have low mortgage rates, however banks and credit unions usually have stricter requirements beyond just your credit score. This can include your income and employment history.
B-Lenders may also offer low interest mortgages, however they often deal mainly with insured mortgages. Not having a credit score above 680 to qualify for CMHC mortgage insurance can limit your options.
Depending on the private mortgage lender, no minimum credit score for a mortgage may be required. Instead, private lenders look more heavily towards the amount of equity that you have in your home. Private lenders do have higher mortgage rates than traditional lenders and are generally a last-resort option for temporary financing. Building up your credit score in the meantime, such as making on-time payments on a credit card, can help you qualify for lower interest rate mortgages at traditional lenders in the future. Mortgage brokers can also help you to find a suitable mortgage lender that is right for you.
If you are over 55 years old, reverse mortgages can be an option if you need extra cash today. Reverse mortgages, from Equitable Bank or CHIP, do not have any minimum credit score requirements. Instead, there is a minimum home value requirement. Interest rates are also higher.
Mortgage pre-approvals include your mortgage lender checking your credit. These ‘hard inquiries’ will slightly negatively impact your credit score. Hard inquiries occur when lenders check your credit when you are applying for a credit product. This is different from ‘soft inquiries’, such as when you check your credit report yourself, which does not impact your credit score.
Multiple credit checks from different mortgage lenders within a certain period of time will only count as one hard inquiry. All inquiries will still show up on your credit report, however it will only negatively impact your credit score once.
Equifax and TransUnion are the two credit reporting bureaus in Canada. They both charge you to view your credit score. Free online alternatives are available, such as Credit Karma, Borrowell, and Mogo, as well as at some major banks. For example, RBC, CIBC, and BMO all allow you to view your credit score for free online.
Your credit report contains a list of inquiries made by lenders. TransUnion allows you to view your credit report for free once every month, while Equifax Canada also allows you to request your credit report for free.
Mortgage lenders accept borrowers without any credit history in certain circumstances. Some major banks, such as TD and CIBC, offer special mortgage programs for new immigrants that have a limited or no Canadian credit history, or for foreign workers on a work permit. Private mortgage lenders may also accept borrowers without any credit history.
Refinancing your mortgage means closing your existing mortgage and opening up a new one. This requires you to go through the standard application process again, including credit checks. Having a good credit score is still needed for better chances of your mortgage refinance to be approved. In 2020, 81.4% of same lender refinances were approved, compared to 96.7% of renewals and 61.3% of new home purchases.