Why Your Credit Score Matters for Mortgage Approval
Your credit score is one of three pillars lenders evaluate — alongside income and down payment. A higher score unlocks lower rates, smaller down payments, and access to more lenders.
Credit Score Range
Rating
Mortgage Impact
760+
Excellent
Best rates, all lenders available
680–759
Good
Standard A-lender approval
620–679
Fair
Limited A-lender options, may need credit union
500–619
Poor
B-lender territory
Below 500
Very poor
Private lender only
What Causes Bad Credit?
Factor
Credit Score Impact
Time on Report
Late payments (30+ days)
-50 to -110 points
6 years
Collections accounts
-50 to -100 points
6 years
Consumer proposal
Severe
3 years after completion
Bankruptcy
Severe
6–7 years after discharge
Maxed credit cards (high utilization)
-30 to -70 points
Updates monthly
Too many credit applications
-5 to -10 per inquiry
2 years (soft impact after 1)
How to Get a Mortgage with Bad Credit
Option 1: B-Lender Mortgage
B-lenders are alternative mortgage lenders that specialize in borrowers who don’t meet bank standards. They are federally or provincially regulated and offer reasonable terms.
Feature
Details
Credit score accepted
500–650
Interest rates
1–3% above prime
Down payment
20% minimum (not CMHC-insurable)
Term length
1–3 years (some offer 5-year)
Exit strategy
Rebuild credit and refinance to A-lender
Popular B-lenders in Canada:
Lender
Minimum Score
Notes
Home Trust
550
Largest alt-A lender
Equitable Bank
550
Also operates as EQ Bank
MCAP
550
One of Canada’s largest non-bank lenders
First National
600
Competitive alt-A rates
CMLS Financial
550
Nationwide alternative lending
Bridgewater Bank
550
Alberta-based, competitive rates
Option 2: Private Mortgage Lenders
If B-lenders decline your application, private lenders are a last resort. They focus primarily on the property value (equity) rather than your credit score.
Feature
Details
Credit score accepted
Any (even no score)
Interest rates
7–15%
Down payment
20–35%
Fees
1–3% lender fee + broker fee
Term length
6 months to 2 years
Best for
Short-term bridge while rebuilding credit
Option 3: Credit Union
Some credit unions have more flexible underwriting and may look at the full picture rather than just the score.
Feature
Details
Credit score accepted
600+ (varies by credit union)
Interest rates
Competitive with banks
Down payment
5% minimum in some cases
Advantage
Manual underwriting, relationship-based
Limitation
Must be a member in the geographic area
Bad Credit Mortgage Rates vs. Good Credit
Scenario
Credit Score
Rate (5-Year Fixed)
Monthly Payment ($400K)
Total Interest (25 Years)
Excellent credit
780
4.39%
$2,183
$254,808
Good credit
700
4.69%
$2,239
$271,589
B-lender
560
6.49%
$2,679
$403,688
Private lender
450
10.99%
$3,909
$772,744
The difference between excellent credit and a B-lender rate on a $400,000 mortgage is approximately $496/month — or nearly $149,000 over 25 years.
How to Improve Your Credit Score for a Mortgage
Action
Timeline
Expected Impact
Pay all bills on time for 6+ months
6 months
+30 to +50 points
Reduce credit utilization below 30%
1–2 months
+20 to +40 points
Pay down collections accounts
1–3 months
Varies (removes flag)
Get a secured credit card
6–12 months
Builds positive history
Dispute errors on credit report
30–90 days
Varies
Avoid new credit applications
Ongoing
Prevents score drops
Become an authorized user
1–3 months
Adds positive history
Step-by-Step Credit Rebuild Plan
Month
Action
Month 1
Pull both Equifax and TransUnion reports — dispute any errors
Month 1
Get a secured credit card ($500–$1,000 limit)
Month 1–6
Use secured card for small recurring charges, pay in full monthly
Month 3
Apply for a credit-builder loan (available at some credit unions)
Month 6
Check score — should see improvement of 30–60 points
Month 12
Apply for unsecured credit card if score has improved
Month 12–24
Continue building history — contact a mortgage broker to reassess
Tips for Getting Approved with Bad Credit
Increase Your Down Payment
A larger down payment reduces the lender’s risk and can offset a lower credit score.
Down Payment
Effect on Approval Odds
5%
Only A-lenders (680+ credit required)
10%
Some credit unions may consider
20%
B-lender approval likely
25–30%
Strong B-lender approval; some private lenders at better rates
35%+
Private lender approval with best available private rates
Use a Co-Signer
A co-signer with good credit can help you qualify for better rates. The co-signer is equally responsible for the mortgage if you default.
Work with a Mortgage Broker
A mortgage broker has access to dozens of lenders, including B-lenders and private lenders. They can match your profile to the right lender and negotiate on your behalf. For bad credit mortgages, a broker is almost always the best path.
Frequently Asked Questions
Can I get a CMHC-insured mortgage with bad credit?
No. CMHC, Sagen, and Canada Guaranty (the three mortgage insurers) require a minimum credit score of 600-680 depending on the insurer and the application. Without mortgage insurance, you need at least a 20% down payment.
Should I wait to improve my credit or buy now?
Situation
Recommendation
Score is 600–679
May be worth waiting 6–12 months to reach 680+ for A-lender rates
Score is 500–599
Consider a B-lender now if housing costs are rising, plan to refinance in 1–3 years
Score is below 500
Focus on credit rebuilding for 12–24 months unless you have 25%+ down
Housing market is cooling
Less urgency — use time to rebuild
Renting costs more than owning
Run the numbers with B-lender rates to see if buying still makes sense