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!

Joel Olson
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Will Collections Impact Your Mortgage?

By Joel Olson • April 22, 2025
A question that comes up from time to time when discussing mortgage financing is, “If I have collections showing on my credit bureau, will that impact my ability to get a mortgage?” The answer might have a broader implication than what you might think; let's spend a little time discussing it. Collections accounts are reported on your credit bureau when you have a debt that hasn’t been paid as agreed. Now, regardless of the reason for the collection; the collection is a result of delinquency, it’s an account you didn’t realize was in collections, or even if it’s a choice not to pay something because of moral reasons, all open collections will negatively impact your ability to secure new mortgage financing. Delinquency If you’re really late on paying on a loan, credit card, line of credit, or mortgage, and the lender has sent that account to collections, as they consider it a bad debt, this will certainly impact your ability to get new mortgage financing. Look at it this way, why would any lender want to extend new credit to you when you have a known history of not paying your existing debts as agreed? If you happen to be late on your payments and the collection agencies are calling, the best plan would be to deal with the issue head-on. Settle the debts as quickly as possible and work towards establishing your credit. Very few (if any) lenders will even consider your mortgage application with open collections showing on your credit report. If you’re unaware of bad debts It happens a lot more than you’d think; people applying for a mortgage are completely unaware that they have delinquent accounts on their credit report. A common reason for this is that collection agencies are hired simply because the lender can’t reach someone. Here’s an example. Let’s say you’re moving from one province to another for work, you pay the outstanding balance on your utility accounts, change your phone number, and make the move. And while you think you’ve paid the final amount owing, they read your meter, and there is $32 outstanding on your bill. As the utility company has no way of tracking you down, they send that amount to an agency that registers it on your credit report. You don't know any of this has happened and certainly would have paid the amount had you known it was due. Alternatively, with over 20% of credit reports containing some level of inaccuracy, mistakes happen. If you’ve had collections in the past, there’s a chance they might be reporting inaccurately, even if it's been paid out. So as far as your mortgage is concerned, it really doesn’t matter if the collection is a reporting error or a valid collection that you weren’t aware of. If it’s on your credit report, it’s your responsibility to prove it’s been remediated. Most lenders will accept documentation proving the account has been paid and won’t require those changes to reflect on your credit report before proceeding with a mortgage application. So how do you know if you’ve got mistakes on your credit report? Well, you can either access your credit reports on your own or talk with an independent mortgage advisor to put together a mortgage preapproval. The preapproval process will uncover any issues holding you back. If there are any collections on your bureau, you can implement a plan to fix the problem before applying for a mortgage. Moral Collections What if you have purposefully chosen not to pay a collection, fine, bill, or debt for moral reasons? Or what if that account is sitting as an unpaid collection on your credit report because you dispute the subject matter? Here are a few examples. A disputed phone or utility bill Unpaid alimony or child support Unpaid collections for traffic tickets Unpaid collections for COVID-19 fines The truth is, lenders don’t care what the collection is for; they just want to see that you’ve dealt with it. They will be reluctant to extend new mortgage financing while you have an active collection reporting on your bureau. So if you decide to take a moral stand on not paying a collection, please know that you run the risk of having that moral decision impact your ability to secure a mortgage in the future. If you have any questions about this or anything else mortgage-related, please connect anytime! It would be a pleasure to work with you!

3 Questions To Ask Yourself Before Listing Your Home!

By Joel Olson • April 8, 2025
Deciding to list your home for sale is a big decision. And while there are many reasons you might want/need to sell, here are 3 questions you should ask yourself; and have answers to, before taking that step. What is my plan to get my property ready for sale? Assessing the value of your home is an important first step. Talking with a real estate professional will help accomplish that. They will be able to tell you what comparable properties in your area have sold for and what you can expect to sell your property for. They will also know specific market conditions and be able to help you put a plan together. But as you’re putting together that plan, here are a few discussion points to work through. A little time/money upfront might increase the final sale price. Declutter and depersonalize Minor repairs A fresh coat of interior/exterior paint New fixtures Hire a home stager or designer Exterior maintenance Professional pictures and/or virtual tour But then again, these are all just considerations; selling real estate isn’t an exact science. Current housing market conditions will shape this conversation. The best plan of action is to find a real estate professional you trust, ask a lot of questions, and listen to their advice. What are the costs associated with selling? Oftentimes it’s the simple math that can betray you. In your head, you do quick calculations; you take what you think your property will sell for and then subtract what you owe on your mortgage; the rest is profit! Well, not so fast. Costs add up when selling a home. Here is a list of costs you’ll want to consider. Real estate commissions (plus tax) Mortgage discharge fees and penalties Lawyer’s fees Utilities and property tax account settlements Hiring movers and/or storage fees Having the exact figures ahead of time allows you to make a better decision. Now, the real wildcard here is the potential mortgage penalty you might pay if you break your existing mortgage. If you need help figuring this number out, get in touch! What is my plan going forward? If you’re already considering selling your home, it would be fair to guess that you have your reasons. But as you move forward, make sure you have a plan that is free of assumptions. If you plan to move from your existing property to another property that you will be purchasing, make sure you have worked through mortgage financing ahead of time. Just because you’ve qualified for a mortgage in the past doesn’t mean you’ll qualify for a mortgage in the future. Depending on when you got your last mortgage, a lot could have changed. You’ll want to know exactly what you can qualify for before you sell your existing property. If you’d like to talk through all your options, connect anytime! It would be a pleasure to work with you and provide you with professional, unbiased advice.