What to Do If Your Credit Score Is Too Low for a Mortgage

 

mortgage for bad credit

Is your credit score too low to get approved for a mortgage? You're not alone. Many Canadians face this roadblock when trying to buy a home. It's frustrating, stressful, and can make you feel like homeownership is out of reach. But here's the good news—you still have options.

In this blog, we'll walk you through exactly what to do if your credit score is holding you back. Whether you're looking into a mortgage for bad credit or exploring help from a private mortgage lender in Ontario, we'll help you understand your next steps. If you've been denied a mortgage or you're worried about being turned down, this guide is for you.

What Is Considered a Low Credit Score?

In Canada, credit scores range from 300 to 900. Here's a quick breakdown:

  • 300–559: Poor

  • 560–659: Fair

  • 660–724: Good

  • 725–759: Very Good

  • 760–900: Excellent

Most traditional lenders require a minimum score of around 620 to consider a mortgage application. If your score is lower, they might deny your application or offer high interest rates.

Why Credit Scores Matter for Mortgages

Your credit score helps lenders decide whether you're a trustworthy borrower. It's based on:

  • Your payment history

  • Total debt

  • Length of credit history

  • Types of credit

  • Recent credit inquiries

If your credit score is too low, lenders think there's a higher risk you won't pay back your loan on time.

But that doesn't mean you're out of options.

Step 1: Check and Understand Your Credit Report

The first thing you should do is check your credit report. You can get a free report from:

  • Equifax Canada

  • TransUnion Canada

Look for errors like:

  • Incorrect balances

  • Missed payments you made

  • Old accounts are not marked as closed.

Disputing and fixing these errors could quickly boost your score.

Step 2: Pay Down Your Existing Debt

If you have high credit card balances or personal loans, start reducing them. This lowers your credit utilization rate, which can boost your score.

Aim to keep your credit usage under 30% of your total available credit.

Even paying off small amounts can help over time. Every little bit counts.

Step 3: Consider a Mortgage for Bad Credit

If you can't wait to buy a home, consider applying for a mortgage for bad credit.

These mortgages are designed for borrowers with:

  • Credit scores under 620

  • Past bankruptcies

  • Late or missed payments

Lenders offering these loans often look at your income, job stability, and down payment more than your credit score.

While the interest rates might be higher, it could be your first step toward homeownership.

Step 4: Increase Your Down Payment

A bigger down payment reduces the risk for the lender. If you can put down at least 20%, your chances of approval improve—even with poor credit.

Saving for a larger down payment might take time, but it shows financial responsibility. Plus, you won't need mortgage default insurance.

Step 5: Work with a Private Mortgage Lender in Ontario

Traditional banks aren't your only option. A private mortgage lender in Ontario can help if you've been turned down elsewhere.

Private lenders:

  • Have more flexible approval criteria

  • Focus more on your property value and equity.

  • Are faster to approve than banks

Many borrowers with low credit scores choose this route when they need a loan fast or have been denied by big banks.

Make sure you understand the loan terms and fees. Always read the fine print.

Step 6: Get a Co-Signer

A co-signer with good credit can boost your mortgage application.

If a family member or close friend is willing to co-sign, lenders feel more secure approving your loan. Just remember, your co-signer becomes responsible for the loan if you miss payments.

This is a big commitment for both parties, so be honest and cautious.

Step 7: Use Credit-Building Tools

Improving your credit is key, even if you get approved for a mortgage for bad credit. Tools that can help include:

  • Secured credit cards

  • Credit builder loans

  • Automatic bill payments

  • Becoming an authorized user on someone else's card

These actions add positive data to your credit report over time.

Step 8: Work With a Mortgage Broker

A mortgage broker can connect you with the best loan options for your situation.

They have access to:

  • Specialized lenders

  • Private mortgage lenders in Ontario

  • Flexible programs for buyers with bad credit

A broker can save you time, paperwork, and possibly money. They can even help you plan your next steps to qualify for better rates later on.

Step 9: Be Honest About Your Situation

Never lie or hide your credit history. Lenders will check your report anyway.

Instead, prepare a short explanation for any red flags like:

  • Missed payments

  • Collections

  • Previous bankruptcies

Being upfront shows maturity and builds trust.

Step 10: Plan for the Future

If you're not in a hurry to buy a home, consider taking 6 to 12 months to improve your credit.

Here's a simple plan:

  • Pay all bills on time.

  • Reduce credit card balances.

  • Avoid opening new accounts.

  • Keep old accounts open.

  • Monitor your credit report.

These habits make a real difference over time.

Conclusion

Having a low credit score doesn't mean you'll never own a home. It simply means you'll need a different strategy—and a bit more patience. With the proper steps, guidance, and persistence, it's entirely possible to secure a mortgage for bad credit and move forward with your homeownership goals. Start by checking your credit report, fixing any errors, and paying down debt. If traditional lenders say no, turn to a private mortgage lender in Ontario, who may offer more flexible terms based on your income or property value—not just your credit score.

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