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What counts as a bad credit score, and can you still get a mortgage?

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What is a bad credit score, and will you still be able to get a mortgage if you have one?

Mary Sialtsis, a mortgage broker in Mississauga, Ont., said it's not impossible to make the dream of homeownership a reality, but there are some challenges that come with a poor credit score.

What is a bad credit score?

Bad credit scores don't have to crush anyone's dreams of homeownership, but it's important to know the reality of your situation.

Credit scores in Canada range from 300 to 900, with higher scores being considered optimal.

What is considered bad credit varies, but Sialtsis said in an interview with CTV's Your Morning Thursday that – when it comes to mortgages – most lenders are looking for a minimum score of 680.

"Generally anything below 680 is considered bad. The worst, by far, is anything below 600," Sialtsis said.

Consumers can find out their full credit history by requesting it from Equifax or TransUnion, and they can do this once a year for free. The report will provide a full breakdown, she said.

Those just looking for their credit score, not a full report, may be able access this through online banking services or their banking app, some of which offer regular updates.

What can lower your credit score

Missed payments can lead to what Sialtsis prefers to call "bruised" credit, but even if you're making your minimum payments, another thing can be hurting your score: having a high balance.

"Even though you're paying on time, consistently carrying high balances will have an impact on your score," she explained.

Consumers should keep their credit card balance below 60 per cent of the limit, she recommended, saying below 50 per cent of the limit would be even better.

Mortgage broker vs. bank

Those with "bruised credit" should know what their options are when looking for a mortgage, and what will likely be ruled out.

According to Sialtsis, regular banks won't be able to help them if their score is below the threshold.

She said would-be buyers should first contact a mortgage broker or mortgage professional, who will be able to work with them while shopping around for rates.

Some brokers even advertise that they'll work with clients who have bad credit, trying to get buyers approved even if they've been turned down by their bank.

Brokers may be able to help with other types of mortgages, or with finding alternative lenders.

How to improve your credit score 

Even if they are able to find a mortgage, people thinking about buying a home should try to start "fixing" their credit, Siatalis said.

Paying your bills on time is the most impactful way to improve their credit score, Sialtsis said.

She recommended setting up automatic payments with online banking. Even setting this up so that banks take the minimum amount when bills are due will make life easier, she said.

How long does it take?

It can take years to clean up your credit history, according to Sialtsis.

"So what lenders like to see after you've had a period of bruised credit is ... two years of clean credit history, meaning you've paid on time, your balances are kept lower, there aren't any derogatories or any kind of collection items," she said.

No credit history or a new Canadian?

Sialtsis recommends newcomers to Canada and people without a credit history get a credit card immediately, even if it's a secured credit card.

Secured cards work somewhat like debit cards. The holder pays off the maximum balance before any money is spent, so there's no risk of a bill being missed, and the limit can be set low for those worried about accidentally overspending.

Sialtsis said it may feel "ridiculous" to have this type of pre-paid card, but can provide those who are new to credit with a lower-risk way to build up a score. Over time, as the holder proves themselves to be a good borrower, their credit score will improve and other borrowing options, including possibly mortgages, will become available.

As mentioned, those applying to borrow money for a vehicle or a home often need to have two years of good clean credit history.

In addition, Sialtsis said, lenders may prefer borrowers with at least two different methods of credit, such as a credit card and a line of credit or multiple credit cards. She said ideally those methods of credit have a minimum available limit of $2,500 each, to prove a borrower is responsible.

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