What counts as bad credit
Most prime lenders in Canada want a credit score of 600 or higher for a conventional mortgage, with 680 or above preferred for the best rates. Scores below 600 are where prime lenders typically decline, but alternative lenders and private lenders operate in that range. The exact number matters less than the story behind it, and lenders look at why the score dropped.
- Scores above 680: prime lender territory
- Scores 600 to 679: may still qualify with some prime or near-prime lenders
- Scores 500 to 599: alternative lender territory, higher rates
- Scores below 500: private lender territory, equity-based lending
Alternative lenders vs private lenders
Alternative lenders are regulated financial institutions that serve borrowers who do not fit prime bank criteria. They offer better rates and terms than private lenders but still have minimum credit and income requirements. Private lenders are individuals or mortgage investment corporations that lend based primarily on equity. They are the most flexible but also the most expensive. Our private mortgages page covers private lending in detail.
What bad credit lenders look at instead
When a credit score is low, lenders shift focus to other indicators of risk. Equity in the property is the primary factor for private lenders. Alternative lenders also look at income stability, the reason for the credit damage, and whether it is in the past or ongoing. A bankruptcy that was discharged three years ago is viewed differently from one that happened last month.
- Equity in the property, expressed as loan-to-value
- Stable income, even if non-traditional or self-employed
- The age and type of credit issues on the report
- Whether the credit problems are resolved or ongoing
- The property type, location, and condition
Types of bad credit mortgage solutions
There is no single bad credit mortgage. The right solution depends on how far below prime you are and how much equity you have. A near-prime alternative lender might offer a rate only slightly higher than prime for a borrower at 620 with stable income. A private lender might offer an interest-only one-year term for a borrower at 520 with significant equity. Matching the solution to the situation is what a broker does.
Rebuilding credit to move back to prime
A bad credit mortgage should come with a plan to return to a prime lender. That means rebuilding credit during the term, which involves paying all bills on time, keeping credit card balances low, and avoiding new credit applications. Most borrowers who use alternative or private lending can qualify for a prime mortgage within 12 to 24 months if they follow a structured rebuild plan.
- Pay every bill on time, every month
- Keep credit card balances under 30 percent of the limit
- Do not apply for new credit unless necessary
- Review your credit report for errors and dispute them
- Plan to refinance with a prime lender at renewal
The honest trade-off
Bad credit mortgages cost more. Rates are higher, fees may apply, and terms are often shorter. That is the price of access when a bank has declined. The goal is not to stay in a bad credit mortgage forever, but to use it as a short bridge while you rebuild and then refinance at a better rate. A broker who understands both prime and alternative lending can map that path for you.
Frequently asked questions
- Can I get a mortgage with a 550 credit score in Toronto?
- Yes, through an alternative or private lender. The rate will be higher than prime and the lender will focus heavily on your equity and income, but approval is possible.
- How much down payment do I need with bad credit?
- With a credit score below 600, most lenders want at least 20 percent down, and private lenders may want more. More equity always means more options.
- Can I get a bad credit mortgage after bankruptcy?
- Yes, if the bankruptcy is discharged, usually for at least one to two years. Lenders look at how long ago the discharge was and what you have done to rebuild since.
- Will a bad credit mortgage hurt my credit further?
- No. Making the payments on time each month actually helps rebuild your credit, which is the first step toward refinancing into a prime mortgage at renewal.