A Guide to Credit Scores for A Mortgage Approval

Navigating the world of mortgages can often feel like decoding a secret language, especially when it comes to understanding credit scores. If you’ve been wondering about the intricacies of credit scores and how they impact your mortgage approval, you’re in the right place. Let’s dive deep into the world of credit scores and how they play a crucial role in your journey to securing a mortgage.

What Is the Minimum Credit Score for a Mortgage in Canada?

The minimum credit score depends on the lender type:

• 600 is typically the minimum for traditional A lenders
• 500–600 may qualify with alternative lenders
• Below 500 usually requires private lending

The higher your score, the more options and better rates you’ll have.

The Role of Credit Scores in Mortgage Approval

The majority of lenders use a FICO credit score from Equifax to assess your mortgage eligibility. However, it’s essential to know that there are multiple credit scores on a credit bureau. The score you see when you check personally (ERS 2.0 score) may differ from the FICO score obtained during a professional (hard) credit check, as they are calculated using different algorithms. Remember, mortgage lenders primarily use Equifax, so ensure you’re looking at the right score.

Where to Check Your Credit Score

If you’re unsure about your credit score, consider purchasing a report from Equifax or obtaining a free copy from sites like Borrowell.com. These personal scores are usually accurate within 50 points of your official FICO score.

Mortgage lenders in Canada primarily use Equifax FICO scores. TransUnion scores (like Credit Karma) may differ significantly because they use a different scoring model. For mortgage purposes, Equifax is generally considered the gold standard. If you want the most accurate reflection of what a lender will see, purchase your report directly from Equifax.

Understanding Credit Score Requirements by Lender Type

A Lenders (Traditional Banks & Mortgage Lenders)

• Minimum score: 600
• Ideal score: 680+
• Lowest interest rates available
• Down payment as low as 5%
• Best overall mortgage terms

B Lenders (Alternative Lenders)

• Typically accept scores between 500–600
• Minimum 20% down payment required
• Interest rates are usually about 1% higher than A lenders
• Often charge a lender fee (typically 1–2% of the mortgage amount)
• More flexible with income types (self-employed, rental income, etc.)

Private Lenders

• Usually used when credit is below 500
• Down payments often 20–35%
• Higher interest rates
• Shorter term solutions

A vs B Lenders – What’s the Real Difference?

An A lender is your traditional bank or mortgage-only lender offering the lowest rates and most favorable terms.

A B lender is an alternative lender used when a file doesn’t fit traditional guidelines, whether due to credit, income type, or unique circumstances.

It’s important to understand that it’s not always just about credit, and we regularly see clients with 800+ credit scores using B lenders because of income complexity, Airbnb income, self-employment, or new-to-Canada files.

If you qualify for an A lender, that is almost always the preferred option.

How Much Higher Are B Lender Rates?

Interest rates with B lenders are typically around 1% higher than A lenders.

However, this can vary based on:

• Term length (1-year, 2-year, 3-year vs 5-year)
• Credit score strength
• Overall file quality

One important thing to note:

B lenders also charge a lender fee, typically 1–2% of the mortgage amount.

For example:

On a $400,000 mortgage, a 1% lender fee equals $4,000.

That’s why we always try A lenders first.

Improving Your Credit Score: 10 Ways to Build It Before You Apply

Most credit score problems are fixable, and some can be corrected in a few weeks. As a Halifax mortgage broker I have helped hundreds of clients raise their score by focusing on the factors lenders actually weigh. Here is what works, roughly in order of impact.

1. Pay every bill on time

Payment history is the single biggest factor. One missed payment can knock your score down noticeably. Set up automatic payments or reminders so a due date never slips.

2. Keep your credit utilization low

Utilization, the percentage of each credit line you are using, makes up roughly 30 percent of your score, second only to payment history. Cards or lines of credit near or over their limit are the most common problem I see on mortgage applications. Pay over limit accounts down first, get every balance to 50 percent of the limit or less, then aim for under 30 percent, and keep utilization even across your accounts rather than maxing one out. If you cannot pay a balance down right away, a limit increase lowers the ratio: a $2,000 balance on a $2,000 limit is 100 percent utilization, and raising the limit to $4,000 drops it to 50 percent. Changes typically show on your report within two to eight weeks, and up to 45 days depending on the reporting cycle.

3. Keep a mix of credit types

A blend of credit cards, lines of credit and installment loans (auto or personal) shows lenders you can manage different kinds of borrowing. Revolving credit carries more weight than installment loans because it demonstrates active management.

4. Be strategic with credit applications

Checking your own score is a soft inquiry and does not affect it. Applying for credit is a hard inquiry, and inquiries make up about 10 percent of your score. A few per year is normal, and the credit check for a mortgage application is expected; a burst of applications in a short period is what lenders notice.

5. Correct errors on your report

Review your Equifax and TransUnion reports for inaccuracies or signs of fraud, and dispute anything wrong promptly. Fixing a reporting error is one of the fastest ways to lift a score.

6. Do not close old credit cards

Length of history matters. Closing a card you have held for 10 or 15 years erases that active history and can raise your utilization at the same time. Downgrade to a no fee version or switch products within the same bank instead, and keep long standing accounts open even if you use them only occasionally. The same caution applies to consolidation loans: simplifying payments is fine, but if the loan closes your oldest accounts it can drag your score down.

7. Increase limits carefully

A higher limit with the same spending improves your utilization ratio. Only ask for one if you are confident you will not spend up to it.

8. Build the two lines lenders want to see

Lenders want at least two active credit lines, each with two years of history, a minimum limit of $2,000 and no missed payments. If you are starting from thin or no credit, a secured credit card is the easiest way to open that second line and start the clock.

9. Know how negative items fall off

Collections, missed payments, consumer proposals and bankruptcies all hurt, but they are not permanent. Most negative items drop off an Equifax report after six years. A bankruptcy typically clears six years after discharge and a consumer proposal three years after discharge. Clean, consistent credit established today is what lenders will see next.

10. Be patient and consistent

Building or rebuilding credit takes time. Strong recent history matters a great deal to lenders even if you have had problems in the past. If you are preparing for a mortgage or were recently declined, the right sequence of fixes can make a real difference, and I can tell you exactly what to adjust before you apply.

The Importance of Credit History

Even with a credit score above 650, you could get declined for a mortgage due to insufficient credit history. Lenders need to see that you’ve managed credit responsibly over time. Follow the “2-2-2 Rule”: at least 2 credit lines, 2 years of history, with a minimum limit of $2,000 on each.

Types of Credit

• Revolving Credit: Includes credit cards and lines of credit; essential for showing active credit management.
• Installment Credit: Fixed payments, like car or student loans, show ability to manage long-term debts.
• Open Credit: Typically paid in full each month, like phone bills. Ensure these are always paid on time.
• Mortgage Credit: Not necessary for a great score, but crucial never to miss a payment.

Non-Reporting Items

Some bills like utilities might not appear on your credit report, but defaulting can lead to collections that will.

Ready to See Where You Stand?

Understanding your credit score and its impact on mortgage approval is a crucial step in your home buying journey. Whether you’re already in a good place or need to work on improving your score, remember, every financial situation is unique. Seeking advice from a mortgage professional can provide you with a clear roadmap tailored to your circumstances.

Ready to explore your options? Let’s connect and find the right mortgage solution for you.

FAQs About Credit Scores