How does my credit score affect my mortgage approval? Does a history of bad credit mean I can never buy a home?
Your Credit Score is one of the three main pillars that supports your mortgage application. At its core, a mortgage is a lender extending credit to you. Your credit history lets them see how you’ve used loans in the past and helps determine how you’ll handle this one.
What Is A Credit Score?
Your credit score, sometimes called a Beacon score in Canada, is a number between 300 and 900 that is generated by one of the two reporting bureaus (Equifax and TransUnion). They take all the data that’s been reported about your credit use and habits, feed it through an algorithm, and pop out a number. A higher score indicates a better credit history and less risk to a lender.
There are a lot of aspects that go into your credit score including:
- The number and types of credit you’ve established;
- The length of time since you’ve opened your account(s);
- When you last applied for new credit;
- The proportion of credit used vs the limit;
- Your payment history.
To make it even more complicated, the algorithms are developed and owned by the reporting bureaus, and they are adjusted slightly for different uses. That means the score that you see on a consumer report could be different than what we see as mortgage brokers, which could have slight differences from what a lender will see looking at your file.
How Does My Credit Score Affect My Mortgage Approval?
Since we know that credit scores can vary between the number you see and the one a lender sees, it’s good to have a general idea of your credit when you apply for a mortgage.
- Excellent: a few trade lines that have been established for a long period of time, low use, and no missed payments.
- Good: a few trade lines, some well-established and some newer, moderate use, very few missed payments.
- Bruised: high use, multiple missed payments in the reported history.
- Bad: consumer proposal or bankruptcy and have not yet re-established 2 good trade lines with a 2-year history.
Lenders reserve their best rates for applicants with good or excellent credit. However, even with bruised credit there are some competitive options for your mortgage, and bad credit doesn’t have to mean that your dreams of owning a home are over.
As part of your mortgage application, we’ll get your consent to check your credit and confirm that your sense of your score matches what we’re seeing in the report.
When Does A Mortgage Broker Check My Credit Score?
Our team will generally check your credit score as part of the mortgage pre-approval process. If you have concerns about your credit history, we may pull your credit before presenting your options to you to ensure that our conversation sets reasonable expectations. Otherwise, we usually check your credit once you have a property in mind to confirm the pre-approval before we submit your file to a lender.
One of the reasons to work with a mortgage broker rather than approaching lenders yourself is that we will only pull your credit once and be able to shop the market for you, rather than each lender showing as a separate “hit” on your credit report.
Once you give us the green light to go ahead with your file, the lender will also check your credit to confirm our submission to them.
Can I Buy a House If I Have Bad Credit?
If you have a low credit score or bruised credit, your dream of buying a home isn’t necessarily over. Once we know your situation, we can figure out the next steps – whether that means improving your credit for a future purchase or finding the solution that fits your situation right now.
There’s a myth that if you’ve gone through bankruptcy, you can’t ever buy a house again. That’s not true! Provided you got out of bankruptcy more than two years ago and you have two years of re-established credit, you can potentially get into a new house with as little as a five percent down payment. If you want to get into a house much sooner, a greater down payment could mitigate some of that bad credit history.
If you do have bad credit that you’re working towards resolving, our team can assist you to get into a position to be ready to buy a home and qualify for a mortgage.
There’s a lot to know about your credit score when you’re applying for your next mortgage. When you choose to work with the Auxilium Team, we keep you informed and work with you to ensure that your credit history will support your best mortgage solution.
If that sounds like the service you want for your mortgage financing, start a conversation with us today. Fill out our contact form or give us a call at 250-590-6520 (toll-free 1-855-590-6520) to see how we can find the best solution for your situation.
Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.
This post reflects the best available information at the time of writing/last update. In order to ensure that you have the most up-to-date information, contact us to confirm the details for your specific situation.