Buying a home in Canada requires a strong financial profile. One of the most important parts is your credit score. Lenders use your score to decide if you qualify for a mortgage. They also use it to set your interest rate. A higher score gives you more options and better rates. This guide explains what credit score you need, how lenders use it, and how you can improve it before buying a house in Canada.
What Is a Credit Score?
A credit score is a three-digit number between 300 and 900. It shows how you manage credit. It helps lenders understand how likely you are to repay debt.
In Canada, Equifax and TransUnion are the two main credit bureaus. They collect your credit data and calculate your score.
What Credit Score Do You Need to Buy a House in Canada?
Most lenders prefer a score of 680 or higher. This qualifies you for the best mortgage rates and terms. Some lenders may approve you with a lower score, but you may pay a higher rate.
Here’s a breakdown:
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680 or above – Strong score; you can apply with most banks and lenders.
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600–679 – Fair score; you may still qualify but with higher rates or fewer options.
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Below 600 – Weak score; most banks will not approve. You will need to try alternative lenders.
If your score is below 600, you may need a larger down payment or a co-signer. You may also need to show more proof of income or assets.
What Factors Affect Your Credit Score?
Your credit score depends on five main factors:
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Payment history (35%) – Pay all bills on time. Late payments lower your score.
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Credit use (30%) – Use less than 30% of your total credit limit. High balances hurt your score.
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Credit history length (15%) – Older accounts help. Keep long-standing accounts open.
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New credit inquiries (10%) – Each application for credit lowers your score a little.
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Credit mix (10%) – Using different types of credit (credit cards, loans, etc.) can help.
Lenders prefer a clean, consistent history. They want to see regular payments and low balances.
How to Check Your Credit Score in Canada
You can check your score for free through these services:
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Equifax Canada – www.consumer.equifax.ca
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TransUnion Canada – www.transunion.ca
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Online tools like Borrowell and Credit Karma also offer free access.
Review your report for errors. Dispute any incorrect information. Even small mistakes can lower your score.
How Your Credit Score Affects Mortgage Approval
Lenders in Canada use your credit score to decide three things:
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Approval – They check if you meet their credit standards.
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Interest rate – Better scores get lower interest rates.
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Loan type – Some loans require higher scores or insurance.
For insured mortgages (less than 20% down payment), Canada Mortgage and Housing Corporation (CMHC) usually requires a score of at least 600. Other mortgage insurers, like Sagen and Canada Guaranty, follow similar rules.
If you put down 20% or more, you may avoid insurance and have more lender options, even with a lower score.
Improving Your Credit Score Before Buying a Home
A better credit score means more mortgage choices and lower costs. Here are steps to raise your score:
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Pay bills on time – Set reminders or automatic payments.
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Lower your balances – Pay down credit cards and loans.
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Limit new credit applications – Avoid applying for new cards or loans before your mortgage.
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Keep old accounts open – They show a longer credit history.
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Use a secured credit card – If your score is low, this can help build credit.
Improvement takes time. Start six to twelve months before applying for a mortgage.
Other Requirements for a Mortgage in Canada
Your credit score is one part of your financial profile. Lenders also check:
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Income – You must show steady income from a job, self-employment, or other sources.
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Debt levels – Lenders use the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to measure affordability.
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Down payment – Minimum is 5% for homes under $500,000. Higher-priced homes need more.
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Savings and assets – You may need to show proof of savings for your down payment and closing costs.
These factors help lenders see if you can handle a mortgage.
Types of Lenders in Canada
There are three main types of mortgage lenders:
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A-lenders – These are major banks and credit unions. They require high credit scores and strict documentation.
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B-lenders – These lenders accept lower scores and more flexible income sources. Rates are slightly higher.
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Private lenders – These focus on the property’s value. They accept very low credit scores but charge higher interest rates and fees.
Start with a mortgage broker if your credit is low. Brokers compare lenders and help you find the best match for your situation.
What Happens If You Are Rejected?
If a lender rejects your application, ask for the reason. It may be your score, income, or debt. Improve your weak areas and try again in a few months.
You can also try:
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Applying with a co-signer
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Increasing your down payment
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Paying off existing debts
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Applying with a different lender
Always ask questions before reapplying.
Conclusion
Your credit score plays a key role in buying a house in Canada. A higher score gives you more lender choices, better rates, and smoother approvals. Aim for a score of 680 or higher, but know that options still exist below that level.
Check your credit report. Fix any errors. Lower your balances and pay bills on time. Improve your credit before applying for a mortgage. Consider working with a mortgage broker to explore all lender types, including B-lenders and private lenders.
Understanding your credit score and how it affects your home buying process gives you a better chance at success. Take small steps now to reach your goal of homeownership in Canada.