There are a lot of barriers to owning property for many people, especially for younger generations who believe that the system is set up against them. One of those barriers is a credit score, which is influenced by a range of factors and is taken into consideration when seeking a mortgage approval.
However, there is still a way to invest in and buy Canadian real estate with bad credit, or no credit at all, through crowdfunding with addy.
How credit scores work in Canada
What is a credit score?
For many Millennials and Gen Zers, the credit score is just another in a line of systems that make financial independence and property ownership complicated. At its most basic, credit scores use past actions to predict future financial responsibility, using a variety of factors to determine how safe or risky for a bank or entity to invest in you.
How is a credit score calculated?
A credit score combines a variety of factors, including available credit, length of credit and payment history to come up with a number from 200 to 900. Good to excellent credits fall in the 660 to 900 range.
Obtaining – and indeed maintaining – good credit requires work. Some younger adults may not feel comfortable buying things on credit, but failure to use any credit doesn’t mean you’re financially responsible, it just means you won’t have credit to showcase when you’re interested in a mortgage.
It’s also easy for younger generations to question the efficacy and reliability of a credit score when two different agencies come up with different scores for the same person. That each has a different algorithm points to the inconsistency built into the system, which further discourages Gen Zers to build up credit.
What’s also frustrating for many younger people trying to build credit is that any inquiries into your credit can have a negative effect on it, another complication that may not make sense to those just learning about finance.
How credit scores influence property ownership
Even in the best of times, it’s hard to buy a house with little or no credit. It’s unlikely you’ll be considered as a buyer unless you’ve a mortgage pre-approval, which will be calculated in part due to your credit history. These are not the best of times, however, as red-hot markets in cities big and small across Canada, as well as plenty of suburbs and towns, are seeing property value rising significantly. Low supply is meeting high demand, with the average home price in Canada over $700,000 in December 2021.
Crowdfunding real estate
The basic premise of real estate crowdfunding is that a group of people can come together and invest in a property by pooling their resources to achieve an amount that any one individual could not achieve on their own.
Crowdfunding on its own isn’t enough to allow those with no credit entry into the real estate market. For example, some companies that utilize real estate crowdfunding still have a financial threshold for access, meaning that unless you’re an accredited investor or have a sizable bank account with experience investing, you don’t have access. So how does crowdfunding help those with no credit?
Invest with addy
addy believes in real estate for all, with online investment opportunities for members regardless of their financial history or credit score. In order to become a member, you have to be of age in one of the provinces in which addy invests and choose one of the membership options. Charter members can enjoy addy investment opportunities for $25 per year.
Once a member, addy sets the minimum investment as $1 and the maximum at $1,500. This does two important things. Firstly, it allows anyone to invest safely and enjoy their fractional ownership or a property. Secondly, by capping investment amounts, it prevents the real estate opportunity from being snatched up by a handful of experienced, well-funded investors and shutting out others.