What is the minimum credit score needed for a mortgage in Canada?

Among the many questions on the minds of aspiring homeowners, two questions that are particularly important to consider are: What credit score do I need to secure a mortgage, and how can I improve my rating if it’s too low?

What is the minimum credit score required for a conventional mortgage?

No one wants to be a number, but when you’re looking to buy a house, your credit score is one number you need to know. Depending on the lender, you need a minimum credit score between 620 and 680 to qualify for a conventional mortgage.

This number signals to lenders that you’re a low risk for defaulting on your mortgage, making you a good candidate for a home loan. Qualifying for a mortgage is great, but the higher your score, the better off you’ll be.

What is the difference between an insured and a conventional mortgage?

Generally, there are two different kinds of mortgages available in Canada: insured – also called high ratio – mortgages and uninsured mortgages.

If your down payment is less than 20% of the home purchase price, or if your credit score is lower (though it has to be at least 600), you may be required to get an insured mortgage, which protects your lender in the event you default on your payments.

In Canada, default mortgage insurance is provided by the Canada Mortgage and Housing Corporation (CMHC), and other businesses such as Genworth and Canada Guaranty. While the lender pays the fee, they typically pass the cost on to the homeowner.

What does this mean to you?

If you have a solid credit score and can put more than 20% down, you can forgo the added cost of mortgage default insurance, which can add up to 5% to the cost of your home.

Still, taking out an insured mortgage can also help you secure a lower interest rate – sometimes between 50 basis points to 90 basis points lower, depending on the lender. That potential savings has prompted some homebuyers to find ways to qualify for an insured mortgage, although this strategy only works if the lower interest rate offsets the premium you have to pay for the default insurance. In short, this approach isn’t for everyone, but it’s worth asking your mortgage broker to run the calculations and potential risks to see what approach works best for you.

What is the minimum credit score required for an uninsured mortgage?

Having an uninsured mortgage can help lower your monthly payment and allow you to apply for a longer amortization period (the length of time you have to pay off your loan in full). The minimum credit score you need to forgo those costs is 680, although there may be variations between lenders.

What is considered a strong credit score in Canada?

In Canada, anything above 660 to 724 is likely to be viewed as a good credit score. A score in the range of 725 to 759 would likely be considered a very good score. A borrower with a credit score over 760 would likely be thought to have excellent credit.

What is considered a poor credit score in Canada?

While credit scores north of 660 are considered to be acceptable, anyone with a credit rating may still be able to borrow money but may be offered less attractive loan terms. Anyone with a “poor” credit rating – typically below 560 – might find it harder to access credit and would be unlikely to qualify for more favourable loan terms that could save them money over time.

What affects my credit score?

Whatever financial milestones you’ve achieved, knowing what factors can influence your credit scores is vital.

Those considerations include

• your history of paying your credit card and other bills on time
• using less than 35% of your available credit
• the length of your credit history: the longer you have your credit accounts, the better it looks for your overall credit score
• the frequency – and recency – of new loans or credit card applications
• having a mix of credit, such as a credit card and a line of credit

How can you improve your credit score?

If you want to optimize your credit score before applying for a mortgage, there are a few steps you can take.

Lenders usually prefer you use no more than 30% of the total credit available to you. Holding more debt may suggest that you have an issue repaying what you borrow and could negatively affect your credit scores. Still, the more credit history you have, the better, so it’s a fine balance of using credit but paying it off fully.

Finally, you’ll want to avoid making too many credit inquiries. Why? Making a large number of credit inquiries in a short time can be seen as an attempt to substantially expand available credit, which creates higher risks for a lender.

Ask for help in improving your credit score.

When you apply for a mortgage, your credit score matters. Taking steps to raise your credit score from good to great will not only mean you’re in command of your borrowing but can also save you money.

If you want to get your credit on the right path, talk with a financial advisor for more targeted recommendations on improving your score and questions you may want to consider before buying a home.