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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4 Signs You’re Ready for Homeownership

By Joel Olson • October 21, 2025
Buying your first home is a big deal. And while you may feel like you’re ready to take that step, here are 4 things that will prove it out. 1. You have at least 5% available for a downpayment. To buy your first home, you need to come up with at least 5% for a downpayment. From there, you’ll be expected to have roughly 1.5% of the purchase price set aside for closing costs. If you’ve saved your downpayment by accumulating your own funds, it means you have a positive cash flow which is a good thing. However, if you don’t quite have enough saved up on your own, but you have a family member who is willing to give you a gift to assist you, that works too. 2. You have established credit. Building a credit score takes some time. Before any lender considers you for mortgage financing, they want to see that you have an established history of repaying the money you’ve already borrowed. Typically two trade lines, for a period of two years, with a minimum amount of $2000, should work! Now, if you’ve had some credit issues in the past, it doesn’t mean you aren’t ready to be a homeowner. However, it might mean a little more planning is required! A co-signor can be considered here as well. 3. You have the income to make your mortgage payments. And then some. If you’re going to borrow money to buy a house, the lender wants to make sure that you have the ability to pay it back. Plus interest. The ideal situation is to have a permanent full-time position where you’re past probation. Now, if you rely on any inconsistent forms of income, having a two-year history is required. A good rule of thumb is to keep the costs of homeownership to under a third of your gross income, leaving you with two-thirds of your income to pay for your life. 4. You’ve discussed mortgage financing with a professional. Buying your first home can be quite a process. With all the information available online, it’s hard to know where to start. While you might feel ready, there are lots of steps to take; way more than can be outlined in a simple article like this one. So if you think you’re ready to buy your first home, the best place to start is with a preapproval! Let's discuss your financial situation, talk through your downpayment options, look at your credit score, assess your income and liabilities, and ultimately see what kind of mortgage you can qualify for to become a homeowner! Please connect anytime; it would be a pleasure to work with you!
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Mortgages Aren’t One-Size-Fits-All

By Joel Olson • October 7, 2025
Why the Cheapest Mortgage Isn’t Always the Smartest Move Some things are fine to buy on the cheap. Generic cereal? Sure. Basic airline seat? No problem. A car with roll-down windows? If it gets you where you're going, great. But when it comes to choosing a mortgage? That’s not the time to cut corners. A “no-frills” mortgage might sound appealing with its rock-bottom interest rate, but what’s stripped away to get you that rate can end up costing you far more in the long run. These mortgages often come with severe limitations—restrictions that could hit your wallet hard if life throws you a curveball. Let’s break it down. A typical no-frills mortgage might offer a slightly lower interest rate—maybe 0.10% to 0.20% less. That could save you a few hundred dollars over a few years. But that small upfront saving comes at the cost of flexibility: Breaking your mortgage early? Expect a massive penalty. Want to make extra payments? Often not allowed—or severely restricted. Need to move and take your mortgage with you? Not likely. Thinking about refinancing? Good luck doing that without a financial hit. Most people don’t plan on breaking their mortgage early—but roughly two-thirds of Canadians do, often due to job changes, separations, relocations, or expanding families. That’s why flexibility matters. So why do lenders even offer no-frills mortgages? Because they know the stats. And they know many borrowers chase the lowest rate without asking what’s behind it. Some banks count on that. Their job is to maximize profits. Ours? To help you make an informed, strategic choice. As independent mortgage professionals, we work for you—not a single lender. That means we can compare multiple products from various financial institutions to find the one that actually suits your goals and protects your long-term financial health. Bottom line: Don’t let a shiny low rate distract you from what really matters. A mortgage should fit your life—not the other way around. Have questions? Want to look at your options? I’d be happy to help. Let’s chat.