What bad credit means to a lender
Banks draw hard lines, often in the mid six hundreds. Below the line, the file goes to alternative lenders, who look at the story behind the score: a one-time event like a divorce or illness reads very differently from a pattern of missed payments. Recent history matters more than old history, and a score already climbing matters more than a number in isolation.
The realistic options
Alternative lenders, often called B lenders, offer one to three year terms at rates above bank pricing, with fees around one percent. Private lenders go further down the credit scale at higher cost, relying mainly on equity. The bigger your down payment and the cleaner your recent twelve months, the better the tier you land in.
- B lenders: bruised credit, verifiable income
- Private lenders: equity-based, income-flexible
- Twenty percent down opens far more doors
Use the term as a repair shop
The point of a B-lender term is not the rate, it is the calendar. Twelve to twenty-four months of perfect payments, low revolving balances, and no new credit problems is usually enough to graduate to a bank at renewal. Every month of clean history is literally buying you a better rate later.
What to avoid
Repeated applications that generate hard inquiries, payday loans, which terrify underwriters, and anyone promising guaranteed approval for a fee upfront. A licensed broker costs you nothing on most files and knows which lender fits your specific bruise, which matters more than the bruise itself.
The honest ceiling
Bad credit plus a small down payment plus unstable income is a combination no lender fixes. Sometimes the right advice is to rent another year, rebuild, and buy from strength. A good broker will tell you which situation you are in, because the wrong mortgage is worse than no mortgage.
Frequently asked questions
- What is the minimum credit score for a mortgage in Canada?
- Insured mortgages generally require scores in the six hundreds. Below that, alternative and private lenders assess the whole file rather than a single cutoff.
- How fast can credit improve?
- Meaningful improvement often shows within six to twelve months of low balances and perfect payments. Serious events like bankruptcy take longer, typically two years post-discharge for mainstream options.
- Will a co-signer with good credit solve it?
- Often yes. A strong co-signer can move the file back to bank pricing, though the co-signer takes on full legal liability for the loan.