Bad credit mortgage: what your score actually blocks, and what it does not

A bad credit mortgage is a mortgage arranged when your credit score sits below the thresholds a bank uses. It is not a separate product with a separate contract. It is the same mortgage, written by a lender whose underwriting reads your equity, your income stability and the story behind the score, and priced for the extra risk they are taking.

The thresholds are more specific than most articles admit. An insured mortgage — under 20% down — requires a minimum score of 600. A bank's uninsured lending generally starts at 680. Alternative lenders go considerably lower: NPX, Merix's alternative brand, accepts scores as low as 500, and Haventree Bank publishes no minimum score at all and underwrites the file instead. Private lenders lend against equity and set no score floor, though some post one anyway.

You are also not an outlier. Equifax Canada's Q1 2026 Market Pulse recorded national 90-plus-day mortgage balance delinquencies up 32% year over year, with Ontario up 52% and British Columbia up 36%, while homeowner insolvency volumes rose 11% from the previous quarter. A lot of files that were clean in 2021 are not clean now, and the lending market has responded to that rather than pretending it is not happening.

How a credit problem usually shows up on a mortgage file

Very few people arrive here because of one bad decision. These are the patterns that actually turn up, and each one has a different answer.

What credit score do you need for a mortgage in Canada?

There is no single number, because the answer depends on how the mortgage is insured and who holds it. Four thresholds matter, and knowing which one applies to you tells you almost everything about the rate you will be offered.

600 is the minimum credit score for an insured mortgage from CMHC, Sagen or Canada Guaranty, which is what you need if your down payment is under 20%. Some lenders apply their own overlay at 620. 680 is roughly where a bank's uninsured lending begins — that is, 20% down or more with no insurer involved. 500 is the published floor at some alternative lenders. And private lenders set no minimum, because they are underwriting the property and the equity rather than the borrower's history.

What people miss is that the score is a gate, not the whole assessment. Passing 600 does not approve a file, and sitting at 585 does not end it. Underwriters look at the pattern of the report — how recent the problems are, whether they are still open, whether anything is in collection today, and whether there is a plausible explanation and evidence of recovery.

Credit score thresholds by lender type, Canada 2026

Can you get a mortgage with a 500 or 550 credit score?

Yes, in the right circumstances, and the circumstances are specific. At 500 to 550 an insured mortgage is not available, so the down payment or the existing equity has to be at least 20%. From there the file goes to an alternative or private lender, and the deciding factors become loan-to-value, provable income and whether anything is currently in default.

Named examples help more than generalities. NPX, the alternative brand of Merix, accepts credit scores as low as 500. Haventree Bank publishes no minimum credit score and will consider borrowers who have been through bankruptcy or a consumer proposal, assessing the file as a whole; Haventree also lends by forward sortation area, meaning the first three characters of the postal code, so eligibility genuinely varies by neighbourhood. Private lenders set no score floor at all, though some — Richview Capital, for instance — post one anyway at 600.

The honest version of the trade-off: at those scores you will pay a rate premium, a lender fee, and on private files a broker fee as well. What you are buying with that money is time — the ability to stop a problem getting worse, or to buy a home now instead of in three years — and the plan should always include the date and the conditions on which you stop paying it.

• 20% or more in down payment or existing equity — insured lending is closed below 600
• Nothing currently in default or unresolved collection at funding
• Provable, stable income, or stated income supported by bank deposits
• A property an appraiser can value confidently in a market with normal turnover
• A written rebuild plan with a defined exit date, not an open-ended arrangement

Mortgages after a consumer proposal or bankruptcy

Both are survivable and both follow the same logic: lenders count time since the file closed and evidence of what you have done since. What they are not doing is punishing you for the event itself.

For a consumer proposal, the clock that matters starts at completion, not at filing. Once the proposal is paid in full you receive a certificate of full performance, and that document belongs in the mortgage application. The R7 rating typically remains on your report for about three years after completion, or six years from filing, whichever comes first — and reporting periods can differ between Equifax and TransUnion, so check both. Alternative lenders will generally look at a completed proposal immediately with 20% down. Insured lending usually wants the proposal completed and two years of clean re-established credit behind it.

For a bankruptcy, the clock starts at discharge. A first bankruptcy typically stays on the report for six years after discharge. Most insured programs want roughly two years past discharge plus re-established credit — commonly two trade lines with two years of history and no delinquencies in the last twelve months, which is the standard Sagen applies on its business-for-self program and a fair proxy for the general expectation. Alternative lenders will consider a file within months of discharge where there is equity and income.

One thing to fix early: a proposal or bankruptcy that has been satisfied but is still reporting as active. Bureau errors of this kind are common and they take four to six weeks to correct. Pull both reports now rather than discovering it in underwriting.

Typical seasoning expectations after an insolvency event

Do collections have to be paid before you can get a mortgage?

For an insured mortgage, effectively yes — outstanding collections are almost always required to be paid, and insurers do not have a dollar threshold below which they stop caring. For uninsured and alternative lending it is more nuanced: many lenders will condition the payout on closing, which means the money comes out of the mortgage advance and you do not need it in hand beforehand.

Not all collections carry equal weight. Anything secured or capable of becoming secured against the property — municipal property tax arrears, CRA balances, condo or strata fee arrears, a registered judgment — moves to the front of the queue, because it can rank ahead of the lender's own charge. Those are non-negotiable at every tier. Consumer collections such as an old telecom bill are ordinary conditions.

Paying a collection does not remove it. It updates to 'paid' and continues to report for six years from the date of last activity, and in some cases paying it resets that activity date. That is not a reason to leave it — an unpaid collection blocks approvals and a paid one usually does not — but it is a reason to expect the score to move less than you hoped.

• Property tax arrears, CRA balances, condo or strata arrears and judgments must be cleared, at every lender tier
• Ordinary consumer collections can usually be paid from the mortgage advance at closing
• Insured files generally require all collections paid regardless of size
• Ask the collection agency for a written payout letter before paying anything
• Expect the item to keep reporting as paid for up to six years from last activity

What does a bad credit mortgage cost?

The cost has three parts and they should all be quoted to you before you commit: the rate premium, the lender fee, and where private lending is involved, the broker fee and legal costs.

At an alternative lender, expect roughly 1 to 2 percentage points above A-lender pricing plus a lender fee of about 1% of the mortgage amount, which can often be added to the principal rather than paid in cash. On a $400,000 mortgage that is a $4,000 fee and, at 5.19% against 4.29%, $202.44 more a month. Alternative lenders pay the broker a finder's fee from their own margin, so there is normally no separate broker fee on a B file.

At a private lender, pricing is interest-only and set by loan-to-value: roughly 7% to 11% in first position and 10% to 15% in second, with a lender fee of 1% to 3% and a broker fee of 1% to 2%, plus legal of about $1,500 to $3,000 and an appraisal of $350 to $800. Fees come off the advance, so a $60,000 second mortgage with 5% in fees and $2,650 of legal and appraisal nets you about $54,350 — and the honest way to read the cost is against what you actually receive, not against the face amount.

There is a legal ceiling on all of it. Since January 1, 2025 Canada's criminal rate of interest is an annual percentage rate above 35%. Whether that calculation captures lender and broker fees on a mortgage specifically is not settled in any source we can point to, so treat 35% as a hard outer limit rather than a benchmark — well-run private files land far below it.

Monthly cost of the alternative-lender premium, 25-year amortisation

Rebuilding the file: what actually moves a score

Score repair is mechanical, and the levers are ranked. Payment history is roughly 35% of a score and utilisation roughly 30%, which means the two things that matter most are paying on time every time and getting balances down relative to limits. Everything else is noise by comparison.

The single fastest move for most people is utilisation. Getting each revolving balance below 30% of its limit, and ideally below 10%, can shift a score within one or two reporting cycles — typically 30 to 60 days, because issuers report monthly. That is faster than any other lever available and it costs nothing but the payment itself.

Length of history is why closing old cards is a mistake. A fifteen-year-old card with a $500 limit and no balance is doing quiet, useful work; closing it shortens your average account age and removes available limit, which pushes utilisation up on everything that is left. Leave it open and put a small recurring charge on it.

If you have no reportable credit at all — new to the country, or coming out of an insolvency — a secured credit card is the standard rebuild tool. You post a deposit, the limit matches it, and it reports like any other card. Two secured cards used lightly and paid in full for twelve months will build the two trade lines that insured programs ask for.

• Pay every account on time — one 30-day late can cost 60 to 100 points
• Get revolving balances under 30% of the limit, and under 10% if you can
• Keep old accounts open; average age of accounts is a scored factor
• Do not apply for new credit in the 90 days before a mortgage application
• Dispute genuine reporting errors in writing with both Equifax and TransUnion
• Set up two secured cards if you have no reportable trade lines and use them lightly

Using a refinance to fix the credit problem itself

When the credit problem is caused by high-interest debt rather than by spending, a refinance can be both the treatment and the cure. Consolidating revolving balances into a mortgage collapses utilisation to near zero, and utilisation is the second-largest input to the score. Files frequently gain 40 to 80 points within a couple of reporting cycles after a consolidation, purely from the balances disappearing.

The arithmetic is usually stark. $34,000 carried at 22.99% costs about $651 a month in interest alone before any principal is repaid. The same $34,000 inside a mortgage at 6.29% over 25 years costs about $176 a month in interest at the outset. The catch — and it is a real one — is that you have turned short-term debt into 25-year debt, so the total interest paid can be higher if you only ever make the minimum payment.

So the plan has to include what happens after. Keep paying close to what you were paying before, direct the difference at the mortgage, and close or reduce the limits on the cards you just cleared. A consolidation that is followed by the balances rebuilding is the most expensive outcome in this entire product category, and it is common enough that good brokers raise it before you sign rather than after.

The exit: getting back to an A lender

A bad credit mortgage is meant to be a term, not a tenancy. Alternative terms are typically written for one to three years for exactly this reason — there is a scheduled date to reassess, and a clean run between now and then is what changes the pricing.

Four conditions generally have to be met on the day you apply to move. Twelve to twenty-four months of perfect payment history on the mortgage and everything else. A score back above 680 for uninsured A lending, or above 600 if the file will be insured. No collections, no judgments, no CRA or property tax arrears outstanding. And loan-to-value at 80% or below, which regular payments usually deliver on their own.

Timing matters more than most people realise. Start the move about 120 days before your maturity date. That is long enough to arrange a switch without breaking the term and paying a penalty, and long enough to fix a bureau error if one surfaces. Leaving it to the last three weeks is how people end up renewing at the same lender for another year at the same premium.

What the exit is worth on a $500,000 mortgage

How Lendmax works a credit-impaired file

The first job is to stop guessing. Most people arrive with a score they saw on an app and no idea what is actually reported, which bureau the declining lender pulled, or which single item is doing the damage. That uncertainty costs more than the credit problem does.

The second job is to be straight about cost. If the answer is an alternative lender or a private second, you should see the rate, the lender fee, the broker fee, the legal and the appraisal in one number before you decide anything — and you should see what it looks like to do nothing, too.

1. Both bureaus pulled and read line by line — AI-assisted credit analysis reads the full Equifax and TransUnion files together and flags what is actually blocking approval — an unpaid $340 collection, a proposal still reporting as active, utilisation at 94% — separately from what merely looks bad. Bureaus differ, and the difference sometimes is the approval.
2. AVM valuation to find the equity before the score matters — An automated valuation model sets a working property value in hours. Below 80% loan-to-value the alternative-lender market opens; below 65% the private market prices meaningfully better. Knowing the number first decides which conversation you are actually having.
3. 30+ lenders compared, including the ones with no score floor — Alternative lenders take applications only through brokers, not from the public. We know which ones publish no minimum score, which accept a completed consumer proposal, and which lend in your specific postal area, because several of them underwrite by forward sortation area.
4. A written rebuild plan with dates, and digital signing throughout — You get the target score, the target date, the conditions to be met and the 120-day window to start the move back to A pricing. Commitments and disclosures are signed electronically, and we set the reminder for the exit rather than leaving it to the renewal letter.

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