Impact of Credit Scores on Mortgage Approvals in Canada

Joel Olson • January 17, 2025

Getting approved for a mortgage can be a big step towards owning a home. But did you know that your credit score plays a huge part in this process? A credit score is like a report card for your financial behaviour, and lenders use it to decide if you’re a good risk. In Canada, this score can affect not just if you get approved but also the kind of interest rates and terms offered to you. 


Understanding Credit Scores and Their Components 


A credit score is a number that shows how reliable someone is with money. In Canada, your credit score can range from 300 to 900, and it's calculated using several factors. Payment history is the most significant part; it tracks whether you pay your bills on time. If you've been late or missed payments, it could lower your score. Another important factor is credit utilization, which looks at how much credit you use compared to how much you have available. If you max out your credit cards, it might hurt your score. The length of your credit history also counts. The longer you've had credit, the better it looks, as it gives more data for lenders to examine. 


Credit scores fall into different ranges that lenders use to decide your creditworthiness. A score between 800 and 900 is excellent and is likely to get you the best financial offers. Scores from 720 to 799 are considered very good, while 650 to 719 falls into the good category. If your score is between 600 and 649, it's fair, but it might result in higher interest rates. A score under 600 is seen as poor, and lenders might view you as a higher risk, making it challenging to get approved for a mortgage. 


Why Credit Scores Matter for Mortgage Approvals 


Credit scores are crucial when you're applying for a mortgage. Lenders look at these scores because they help to assess risk. A higher score usually means you have a strong track record of managing your finances. Lenders feel more confident lending money to those with high scores because they are less likely to default on their loans. On the flip side, a lower score could signal potential issues in paying back borrowed money. 

These scores do not just impact approval. They also influence the terms of your loan, including the interest rate and other conditions. A high credit score can help secure a lower interest rate, which means you'll pay less money over time. It might also allow for better mortgage terms, like a smaller down payment or more flexibility. Conversely, a lower score might mean higher rates and stricter terms, which can make the loan more expensive in the long run. 

By understanding how your credit score affects mortgage approvals, you can be more prepared to work on areas that need improvement, putting you in a stronger position to receive favourable loan terms when you apply. 


Improving Your Credit Score for Better Approval Odds 


Boosting your credit score before applying for a mortgage can greatly enhance your chances of approval. Here are some effective strategies to consider. First, paying bills on time is crucial as payment history makes up a significant portion of your credit score. Setting up automatic payments or reminders can help ensure you never miss a due date. Reducing debt is another vital step. Aim to lower your credit card balances and avoid taking on new debt, which can improve your credit utilization ratio. 


Regularly check your credit report for errors. Mistakes like incorrect account information or outdated balances can negatively impact your score. If you spot any inaccuracies, contact the credit bureau to have them corrected. It’s also wise to limit hard inquiries into your credit report. Each application for new credit can ding your score a bit, so try not to open too many new accounts in a short time. 


When should you start working on your credit? Ideally, potential homebuyers should focus on their credit score at least six months to a year before applying for a mortgage. This timeline allows enough room to make meaningful improvements and see results reflected in your score. Remember, a healthy credit score not only improves approval chances but can also secure better loan terms. 


Exploring Mortgage Options With Challenging Credit 

Having a low credit score doesn’t mean your dream of owning a home is out of reach. There are alternative mortgage options to explore if traditional lenders have turned you down. One option is to work with flexible lenders who focus more on your income and current financial situation rather than solely on your credit score. These lenders may offer alternative loans designed for individuals with less-than-perfect credit. 


Government programs can also be a lifeline. Programs like the Canada Mortgage and Housing Corporation (CMHC) offer mortgage loan insurance which allows you to buy a home with a smaller down payment, making homeownership more accessible. Additionally, some provinces offer support programs specifically for first-time buyers or those with moderate income, which can be helpful when dealing with credit challenges. 


However, it’s essential to weigh the pros and cons before proceeding. While these alternatives can provide a path to homeownership, they often come with higher interest rates or stricter terms. Make sure to research and fully understand the conditions before committing. A mortgage broker can be an invaluable resource for advice tailored to your unique situation, guiding you to the best option available. 



Improving your credit score and exploring all available options are critical steps in the mortgage approval process, especially if you're facing challenges. A good credit score not only boosts your approval chances but also opens the door to better interest rates and terms, saving you money over the life of your loan. By understanding the components of a credit score and taking proactive steps to improve it, you position yourself as a strong candidate for lenders. 


If you're looking for personalized help to navigate bad credit mortgage loans in Canada, the Joel Olson Mortgage Team is here to assist you. With expertise in Canadian mortgage solutions, we're ready to guide you through the process, addressing any challenges along the way. Reach out to us to explore your options and find the best path to securing your dream home, even if other lenders have turned you down!

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An Overview of the Home Buying Process

By Joel Olson • June 3, 2025
If you’re in the early stages of planning to buy either your first home or your next home, you’ve come to the right place! Even if you’ve been through it before, the home buying process can be daunting, but it doesn’t have to be when you have the right people on your side! The purpose of this article is to share a high-level view of the home buying process. Obviously, the finer details can be addressed once you’ve submitted an application for pre-approval. But for now, here are some of the answers to general questions you may have as you work through your early preparations. Are you credit-worthy? Having an established credit profile is essential when applying for a mortgage. For your credit to be considered established, you’ll want to have a minimum of two trade lines (credit cards, loans, or lines of credit) with a minimum limit of $2500, reporting for a period of at least two years. From there, you’ll want to make sure that your debt repayment is as close to flawless as possible. Think of it this way: Why would a lender want to lend you money if you don’t have a history of timely repayment on the loans you already have? Making your payments on time, as agreed, is crucial. We all know, however, that mistakes can happen and payments might get missed. If that's the case, it’s best to catch up as quickly as possible! Late payments only register on your credit report if you're past due by 30 days. How will you make your mortgage payments? When providing you with a mortgage, lenders are trusting you with a lot of money. They'll want to feel really good about your ability to pay that money back, over an agreed period of time, with interest. The more stable your employment, the better chances you have of securing mortgage financing. Typically, you’ll want to be employed in a permanent position or have your income averaged over a period of two years. If you’re self-employed, expect to provide a lot more documentation to substantiate your income. How much skin do you have in the game? If you're borrowing money to buy a home, you’re going to have to bring some money to the table. The best down payment comes from accumulating your own funds supported by documents proving a 90-day history in your bank account. Other down payment sources, such as a gift from a family member or proceeds from another property sale, are completely acceptable. In Canada, 5% down is the minimum requirement. However, depending on the purchase price, it might be more. Also, you need to be aware that you will likely have to prove access to at least 1.5% of the purchase price to be allocated for closing costs. How much can you afford? Here’s the thing. What you can afford on paper and what you can afford in real life are often very different amounts. Just because you feel you can afford the proposed mortgage payments, know that you will have to substantiate everything through documentation. The amount you actually qualify to borrow is based on many factors, certainly too many to list in an article designed to provide you with an overview of the home buying process. However, with that said, it’s never too early in the home buying process to seek professional advice. Our services come at no cost to you; it would be our pleasure to help. Working with an independent mortgage professional will allow you to assess your credit-worthiness, provide insight on how a lender will view your income, help you plan for a down payment, and nail down exactly how much you can afford to borrow. And if you need help putting together a plan to improve your financial situation, we can do that too. If you’d like to discuss your financial situation and put together a plan to secure mortgage financing, please get in touch!

GDS/TDS Ratios Explained

By Joel Olson • May 20, 2025
One of the major qualifiers lenders look at when considering your application for mortgage financing is your debt service ratios. Now, before we get started, if you prefer to have someone walk through these calculations with you, assess your financial situation, and let you know exactly where you stand, let’s connect. There is no use in dusting off the calculator and running the numbers yourself when we can do it for you! However, if you’re someone who likes to know the nitty-gritty of how things work instead of simply accepting that's just the way it is, this article is for you. But be warned, there are a lot of mortgage words and some math ahead; with that out of the way, let’s get started! “Debt servicing” is the measure of your ability to meet all of your financial obligations. There are two ratios that lenders examine to determine whether you can debt service a mortgage. The first is called the “gross debt service” ratio, or GDS, which is the percentage of your monthly household income that covers your housing costs. The second is called the “total debt service” ratio, or TDS, which is the percentage of your monthly household income covering your housing costs and all your other debts. GDS is your income compared to the cost of financing the mortgage, including your proposed mortgage payments (principal and interest), property taxes, and heat (PITH), plus a percentage of your condo fees (if applicable). Here’s how to calculate your GDS. Principal + Interest + Taxes + Heat / Gross Annual Income Your TDS is your income compared to your GDS plus the payments made to service any existing debts. Debts include car loans, line of credit, credit card payments, support payments, student loans, and anywhere else you’re contractually obligated to make payments. Here’s how to calculate your TDS. Principal + Interest + Taxes + Heat + Other Debts / Gross Annual Income With the calculations for those ratios in place, the next step is to understand that each lender has guidelines that outline a maximum GDS/TDS. Exceeding these guidelines will result in your mortgage application being declined, so the lower your GDS/TDS, the better. If you don’t have any outstanding debts, your GDS and TDS will be the same number. This is a good thing! The maximum ratios vary for conventional mortgage financing based on the lender and mortgage product being offered. However, if your mortgage is high ratio and mortgage default insurance is required, the maximum GDS is 39% with a maximum TDS of 44%. So how does this play out in real life? Well, let’s say you’re currently looking to purchase a property with a payment of $1700/mth (PITH), and your total annual household income is $90,000 ($7500/mth). The calculations would be $1700 divided by $7500, which equals 0.227, giving you a gross debt service ratio of 22.7%. A point of clarity here. When calculating the principal and interest portion of the payment, the Government of Canada has instituted a stress test. It requires you to qualify using the government's qualifying rate (which is higher), not the actual contract rate. This is true for both fixed and variable rate mortgages. Now let’s continue with the scenario. Let’s say that in addition to the payments required to service the property, you have a car payment of $300/mth, child support payments of $500/mth, and between your credit cards and line of credit, you’re responsible for another $700/mth. In total, you pay $1500/mth. So when you add in the $1700/mth PITH, you arrive at a total of $3200/mth for all of your financial obligations. $3200 divided by $7500 equals 0.427, giving you a total debt service ratio of 42.7%. Here’s where it gets interesting. Based on your GDS alone, you can easily afford the property. But when you factor in all your other expenses, the TDS exceeds the allowable limit of 42% (for an insured mortgage anyway). So why does this matter? Well, as it stands, you wouldn’t qualify for the mortgage, even though you are likely paying more than $1700/mth in rent. So then, to qualify, it might be as simple as shuffling some of your debt to lower payments. Or maybe you have 10% of the purchase price saved for a downpayment, changing the mortgage structure to 5% down and using the additional 5% to pay out a portion of your debt might be the difference you need to bring it all together. Here’s the thing, as your actual financial situation is most likely different than the one above, working with an independent mortgage professional is the best way to give yourself options. Don’t do this alone. Your best plan is to seek and rely on the advice provided by an experienced independent mortgage professional. While you might secure a handful of mortgages over your lifetime, we do this every day with people just like you. It’s never too early to start the conversation about mortgage qualification. Going over your application and assessing your debt service ratios in detail beforehand gives you the time needed to make the financial moves necessary to put yourself in the best financial position. So if you find yourself questioning what you can afford or if you want to discuss your GDS/TDS ratios to understand the mortgage process a little better, please get in touch. It would be a pleasure to work with you, we can get a preapproval started right away.