Category Archives: credit score

Why your credit score matters

And how to improve it

Despite holding multiple credit products (like credit cards or lines of credit) many Canadians don’t understand how debt and their behaviour around it affects their credit score in the eyes of the credit bureau—or why it’s important; on top of that, 47% of Canadians don’t know where to check their credit score.

Your credit score is a three-digit number, between 300 and 900, that measures your creditworthiness. The higher your score the better, as it’s used by lenders and financial institutions to determine whether your credit-worthy or not. In general, a low score could mean you’re declined on a loan or receive a higher interest rate, while a higher score allows for lower interest rates and better options when it comes to things like getting a mortgage and borrowing money. Your credit score number essentially indicates how likely your are to repay money you borrow, based on how you’ve handled past financial obligations.

How is your credit score determined?

Most lenders want to see two forms of active credit for at least two years. The longer the history reporting, the better.

Your credit score is made up of the following:

  • 35% payment history. It’s important to make your payments on time. Missing a $4 dollar payment on a credit card could be as bad a missing a $400 payment, so don’t skip the minimum payment. This also includes collections. Some creditors (even city parking ticket collectors) may report that you haven’t paid them to your credit bureau, or even use a third-party collection agency to get their money back. These collections on your credit bureau can lower your score.
  • 30% utilization ratio. This is your level of indebtedness, or how much of your total available credit you’re using.
  • 15% length of credit. The longer you have an account open, the better. It shows you’re capable of managing credit responsibly.
  • 10% types of credit. It’s good to have a mix of different types of credit (revolving credit like credit cards and lines of credit are riskier than personal loans so it’s better to have fewer of those in your mix) to show that you can handle your payments.
  • 10% inquiries. These happen every time you agree to a “hard credit check”. Hard checks usually happen even when opening a chequing account with a bank or a new phone plan.

3 things that can help improve your score:

1. Practice good utilization ratio habits

A relatively fast way to improve your credit score is to start practicing good utilization ratio habits. Once you start doing this, it could improve in as little as 30-60 days. If your credit card limit is $1,000 and your balance is $1,000, your utilization ratio is 100 per cent — and this not good in the eyes of the credit bureau. Credit bureaus base credit scores on behaviour with credit. If you’re constantly maxing out your credit cards, it could imply that you’re not far away from defaulting on your minimum payments. It looks like your income is stretched. Set an imaginary limit of 70 per cent and don’t go over that. Doing this will keep your credit score healthy. For example, if your credit card limit is $10,000, don’t borrow over $7,000.

2. Think twice about closing an unused credit card

It may seem like a good idea to close a credit card that you’re not using, or have paid off and are trying not to use. But, closing a card, or leaving it inactive can negatively affect your credit score. This goes back to the length of credit factor that the credit bureau reports on which makes up 15% of your credit score. Rather than closing the card, consider using it for a monthly subscription, like Netflix or Spotify, and set up an automatic monthly payment from your bank account to ensure it’s covered. This trick will also improve your utilization ratio and payment history, since you’ll be staying far under your limit, and making on-time payments.

3. Consolidate credit card debt

Credit cards are considered revolving debt; meaning when you pay them down you can keep borrowing against them. This type of debt is psychologically proven to keep people in debt. Many revolving credit products allow you to pay back only the interest, which is a major reason why so many people find themselves stuck in what feels like an endless cycle of debt. If you’re like 46% of Canadians* and you carry a credit card balance every month, you could benefit from a personal instalment loan to help get out of the revolving debt cycle. Unlike credit card debt, an installment loan has a specific term and requires you to pay back interest and principal in every payment, which means you have a set deadline for paying it off and getting out of debt.

The first step in improving your credit score is knowing it. Mogo offers Canada’s only free credit score with free monthly monitoring. Check your score at mogo.ca.

Source: Special to Financial Post | May 6, 2017 |

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Unravelling The Mortgage Challenges Of Going From Pre-Approval To Approval

MORTGAGE APPROVAL

Pre-approval and approval are terms we hear thrown around a lot in real estate, and yet all too seldom do homebuyers know what’s necessary to secure one in the first place. The fact is, a pre-approval should be one of the first steps in the property search process.

As the real estate market in B.C. continues to sweep along at its dizzying pace, many have been left scrambling to make subject-free offers without a pre- approval in place. This, of course, complicates things even when the live file is submitted. During the pre-approval stage it’s important to be upfront and provide accurate information so that your broker and the lender are aware of any possible challenges ahead. Once you have your pre-approval, the more constant everything stays, the better your chance of getting the approval when the time comes. Complications of pre-sales, co-signer’s, or an unexpected life change are some of the few things that can cause your pre-approval to be declined at the last minute.

CO-SIGNER/ GUARANTOR

Co-signers or guarantors can be a tricky business. Quite often, particularly among younger people who haven’t had time to build up a long credit history or stable income, a co-signer may be required by the lender to strengthen the application. It’s important to remember that not all co-signer’s are created equally and, there is just as strong a chance that a co-signer/guarantor will be turned down as there is that you will be by the lender.

Assuming someone has agreed to be your co-signer, this alone is not enough. They will needs a strong credit score, as co-signing or guaranteeing a loan will increase their debt load and it’s their responsibility to pay off the debt if you default. Added to that, if they are asset heavy but have no consistent salary or income base, this will not be looked upon favourably by the lender and you may be turned down for the loan.

When looking for a co-signer, think like a lender. Do they have stable income? Are they in debt? What is their debt-to-income ratio? Have they co-signed for anyone else in the past and, if so, did they take on any additional debt as a result? The more you know about your co-signer, and the more prepared you are with paper evidence of their financial status, the better chance you stand for the approval. Most importantly, if you plan on having a co-signer or a guarantor, their situation must also remain constant as they are really treated as another applicant on the same loan.

PRE-SALE

A pre-sale is when a buyer purchases a property that has yet to be finished, and the majority take place before construction has even commenced. Particularly in a highly competitive market like Vancouver, one of the most attractive features of a pre-sale home is that despite the down payment, you have extra time to cobble together the amount of money you will need to close. For those whose current credit is preventing them from obtaining a mortgage, this extra time can be a welcome and important opportunity. In addition, buyers can often reap the benefits of climbing market value before they even put a dime into a mortgage, strata fees or property tax.

In the case of obtaining a pre-approval, that same time frame that is so attractive for building income can be the very thing that hinders you most. With a pre-sale, usually you are required to put down 15-20 per cent in stages, although here in B.C. some developers are now accepting five per cent from first-time homebuyers who are approved or pre-qualified for a mortgage. However, it’s important to remember that with a pre-sale your broker cannot usually hold the rate for too long; much less until project completion.

With the typical pre-approval letter at a maximum of 120 days, and some lenders doing a pre-approval for pre-sales up to a year in advance, what your broker may be able to provide you with would not hold until the project is complete. Sometimes, the lender financing the project can offer a pre-approval until the completion of the project. However, they will be using higher rates to qualify so if you are tight with your current income and debt level, you would most likely not qualify with the higher or posted rates.

If contemplating a pre-sale, make sure to be realistic about the completion date. Mortgage rules change often and there is no guarantee that the rules or your situation is unchanged at your completion.

UNEXPECTED CHANGES

We have all, at some point, found ourselves in a situation we didn’t anticipate. Whether it’s loss of a job, a decrease in salary, health problems, or any other number of new adjustments such as getting a car loan. But changing jobs, adding debt, and moving around your down payment money can not only affect your pre-approval — it can void it, as it may push your ratios overboard.

Think of a pre-approval as the lender approving your file based on your current condition and any changes will jeopardize that approval. Any variance in your income or debt level is an immediate alarm to the lender, and will affect your pre- approval.

Pre-approvals can be extended with an updated credit bureau and information. If you are actively looking for a home, it’s best to do everything in your power to remain as financially and professionally stable as possible. In other words, if it’s your dream to open your own business, you may want to reschedule that for a couple years down the line. Being realistic and planning ahead are two of the best incentives to guarantee that you are eligible for the mortgage when the time comes.

Source: Huffington Post   Mortgage Professional, Thinking Outside The Branch

MORTGAGE APPROVAL

 

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Secured Credit Cards: Got bad credit? You can still get a credit card…

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Secured Credit Cards

If you have bad credit, one of the best things you can do to start fixing that situation is get a credit card. Sound backwards? A new line of credit that you manage well can do a lot to increase your credit rating. And, in situations involving travel and rental cars, having a credit card makes like that much easier. So, how do you go about getting one when the numbers say no?

Start with Your Bank

If you have a good relationship with a bank, there is a chance that they might approve you for a Secured Credit Card when others won?t. Most banks have credit card offers for current account holders right on their websites. Often, when you apply online for a regular unsecured card from your bank, you can receive an answer right away. Many, if you are not granted a regular card, will automatically offer a secured card instead.

Consider a Credit Union

Credit unions are also more likely than other sources to give those with blemished records a break. One other advantage is that, because they are member organizations, you may be able to get a card with a lower rate, as well.

Read the Fine Print

If you are unable to get a regular card, a secured card may be your only option. The amount that you deposit into the account will equal your credit limit. These cards will almost always have annual fees and higher interest rates than cards available to those with better credit. Make sure you are aware of all of the fees and rules before applying for the card. Some unscrupulous companies that target those with bad credit have monthly fees that, over the course of a year, add up to two to three times the annual fee for other cards.

Pay On-Time Always and Other Rules

Once you have a card, treat your agreement with the card company with the utmost respect. Do not charge over the limit. Make your payment on time every single month. It is best to pay off in full each month and not overuse the card. The percentage of your available credit that you are using affects your credit score, so, low utilization can raise it.

Next Steps

Whether it is secured or unsecured, the credit card you get with bad credit is not going to be the best deal but will help you with the credit repair process. Spend six months to one year using the card a bit each month and paying it off in full. Then, call and ask for a better offer. If you have a secured card, ask to be approved for one that is not secured. If you were able to get one without a security deposit, ask for a higher limit and a lower interest rate. Over time, you will get access to better and better deals and expand your financial opportunities. – See more at: www.keycreditrepair.com.

Source: Real Talk Boston

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How Credit Inquiries Affect Your Credit Score

Have you noticed inquiries on your credit report? Not sure what they mean? Soft and hard inquiries are the result of potential creditors assessing your credit report after you’ve applied for things such as a credit card, mortgage, or car loan. Hard and soft inquiries each affect your credit differently. Read on to learn more:

What Are Soft Inquiries?

Soft inquiries typically occur when your credit report is pulled for a background check. This can occur when you are applying for a new job, getting pre-approved for lending offers, and even when you check your own credit score.

While they will usually show up on your credit report, this isn’t always the case. Plus, they won’t affect your credit score, so you don’t need to be concerned about them.

What Are Hard Inquiries?

Hard inquiries occur when a lender pulls your credit report to make a lending decision. This takes place most commonly when you apply for a loan, credit card, or mortgage. However, there are other reasons that your credit may reflect a hard inquiry, such as when you request a credit limit increase. They can, in some cases, lower your FICO score by one to five points and can remain on your credit report for up to two years. Typically, the more hard inquiries on your credit report, the likelier it is to affect your score.

Multiple hard inquiries in a short period of time can cause significant damage to your credit. When multiple hard inquiries come through at once, the credit bureaus assume you are desperate for credit or can’t qualify for the credit you need. Any future creditors may also take this information and assume that you are a high risk borrower, which will reduce your chances of getting the credit you need. In fact, according to myFICO, people with six hard inquiries or more on their credit are up to eight times as likely to file for bankruptcy, compared to people with no inquiries — meaning that more inquiries usually means greater risk.

Exceptions to the Rule

There are certain instances that are gray areas, which may result in a soft or hard inquiry depending on the situation (such as when you rent a car or sign up for new cable or Internet service). If you aren’t sure about whether your actions will result in a soft or hard inquiry, you can simply ask the financial institution you are requesting financing from.

Another exception is when you are rate shopping. Generally, your FICO score will only record one single inquiry within a 14–45 day period if you are shopping for the best mortgage, auto loan, or student loan rates. By doing all of your shopping for the same type of loan within a two-week span, you can reduce the effect on your credit.

Source: WiseBread.com By Andrea Cannon on 7 March 2016

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Fixing Your Credit After a Bankruptcy to Apply for a Mortgage

When I first started working with Charlie (not his real name) in 2005, his bankruptcy had just been discharged, meaning his remaining debt was cleared. His credit score was 526, and he didn’t think he had a chance to even get a credit card.

Charlie’s bankruptcy filing was needed after a difficult divorce and a medical emergency. In fact, a a majority of people who seek bankruptcy protection do so after a medical emergency, difficult divorce, job loss; or some combination of the three.

It didn’t take long for him to realize that his financial life was not over. Within a couple of months, he’d gotten more than a dozen credit card and other loan offers. After the discharge of a Chapter 7 bankruptcy, you’re considered an even better risk than someone who still has a mountain of debt because you can’t file for bankruptcy for at least eight years. In reality, you can get a credit card immediately after your bankruptcy discharge.

Many people think, That’s exactly what got me into trouble in the first place, so I’m going to avoid plastic in my life forever. That’s a huge mistake if you want to buy a house. You need to rebuild yourcredit score, and the best way to do that is to show that you can manage credit wisely. A credit card history that shows you can pay your bills on-time every month is one of the best ways to rebuild that history.

With my help, Charlie’s credit score was back to 646 in about 2½ years, which is enough to qualify for an FHA and VA loan even in today’s rough mortgage marketplace. When we checked his score in January 2011 it was back up to 727; now he can qualify for some of the best interest rates.

The key is to work on three pieces of the puzzle at the same time immediately after the bankruptcy: Clean up your credit report, begin rebuilding a positive credit history and start saving. Now that you don’t have credit bills to pay any more, start putting as much of that money aside as you can to save toward the downpayment on your next home. The more money you can put down, the better you will look to a mortgage banker.

Fix Your Credit Report

The last thing you probably want to do after a bankruptcy is to review your credit report and see all the damage that you did. Get over it. The quicker you clean up that report, the faster you will be able to improve your credit score. You can get a credit report for free from each of the credit reporting agencies at AnnualCreditReport.com. By federal law you are entitled to one free report each year.

When you get that report, review it and note any errors you see on the report. For example, you may find accounts that are not yours or lenders who reported late payments that are not accurate. The credit reporting agency will send you instructions about how to make corrections. Follow those instructions carefully and make your corrections. Send any proof you have that the account reported is incorrect. The credit reporting agencies tend to believe your creditors rather than you, so the more proof you can send the better.

In addition to making corrections, also inform the credit reporting agency of your bankruptcy and note any accounts on that report that were discharged by the bankruptcy. The credit report agency will then note the bankruptcy, and that will start the clock for the debt to be removed from your credit history. Most negative credit accounts can stay on your report for seven years from the last date of activity. A Chapter 7 bankruptcy stays on your credit report for ten years.

But as a negative mark ages on your credit report its impact on your credit score becomes less and less significant, which is why you can rebuild your credit score even before the bankruptcy drops off.

You may find that you have to go through the correction process several times. Each time the credit reporting agency fixes a report, they will send you a corrected copy. Check it again for any errors and report any remaining errors until your credit report is accurate and all your discharged accounts are noted.

Rebuild Your Credit History

While you’re working with the credit reporting agencies to clean up your credit report, you should also be working on rebuilding your credit history by opening one or two credit accounts to begin positive reporting on your credit report. Each time you pay a bill on time that will be a positive mark and will help to minimize the negative marks.

You’ll likely have to start with a secured credit card. These cards usually require an annual fee and charge higher interest rates. While they’re not the best deal out there, they may be your only choice right after a bankruptcy. After about six to 12 months of using a secured credit card on time, you should be able to get an unsecured card with better terms.

You also may be able to get a retail credit card. Don’t go overboard with getting new credit now that you can. Stick to one or two credit accounts to show you can use credit wisely and pay it on time.

Monitor Your Credit Score

As you’re rebuilding your credit score, you may want to monitor your progress. If your score continues to go up, you’re on the right track. But if you find that your score goes down in any quarter, think about your credit activities. Did you charge a large item? Did you open a new account? That way you’ll learn what does positively and negatively impact your credit score so you can be sure you have the best score before applying for that mortgage in the future.

Six months before applying for a mortgage, don’t take on any new debt and risk ruining all the work you did to rebuild your credit score. Keep your credit accounts active but your balances low to get the best credit score.

Source: AOL Real Estate – Lita Epstein Mar 4th 2011 

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Forgiven debt lingers on credit report for months

Wesley Harkness was evicted from a prior apartment he rented at 90 Jameson. The previous landlord, MetCap Living, claims he did not give them proper notice after they evicted him.

Evicted tenant was charged 2 months rent for not giving notice. The gov’t ruled this illegal, but the debt remained on his credit report for almost 3 months.

Almost three months after Wesley Harkness’ former landlord agreed to forgive his debt, the money was still outstanding on his credit report, downgrading his credit rating and harming his ability to take out a loan or get a credit card.

Only once the Star asked Equifax why his debt hadn’t been erased was the problem finally resolved.

 

Harkness’ five-year saga stands as a warning to how difficult it can be to get anything removed from your credit report – even when the debt is imposed illegally and when the lender agrees to drop the claim.

Harkness was evicted from his Jamieson Ave. apartment in 2010 and shortly afterward received a letter from his landlord demanding two months rent because he did not give proper notice.

 

MetCap, one of Toronto’s biggest corporate landlords with more than 10,000 units in the city, claimed that tenants still had to give 60 days notice to vacate an apartment,even when they were being evicted. After the Star exposed the practice in June, housing minister Ted McMeekin publically stated that it was illegal and MetCap agreed to stop pursuing evicted tenants.

 

Craig McDonald, collections manager at MetCap’s in-house collections agency, Suite Collections, sent a fax to the credit bureau Equifax on June 25th, asking that Harkness’ debt be marked as “settled.” But Equifax claims to have never received the fax.

Harkness only found out that his debt was still considered “outstanding” when he went to the Equifax office near Finch Ave. and Yonge St. to get his credit report this month, more than 11 weeks after Equifax received the request to mark it as settled.

But one debt expert says even if the debt is considered settled, “that’s not good enough.”

“There’s a distinction here between a debt being settled and if a debt should never have been put there in the first place,” said Mark Silverthorn, a former collections lawyer who quit the industry to share his insider knowledge with the public.

When a debt has been settled, it remains on your credit report for seven years, Silverthorn said. But if a debt was imposed illegally, the lender should have the debt removed from your credit report entirely.

 

“If the Ontario government has said that this practice is illegal, then there are no settlements. (The debt) shouldn’t be there,” Silverthorn said.

When the Star contacted Equifax and MetCap to inquire into the lingering debt, a second fax was sent to entirely remove the debt.

 

Equifax Vice President John Russo said a letter was sent to Harkness confirming that it had been removed entirely from his credit report last week.

Source: thestar.com –  Staff Reporter, Published on Thu Oct 01 2015

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The Best Credit Cards in Canada for People with Bad Credit

bad-credit

As the saying goes, past behaviour is the best indicator of future behaviour. And in that spirit, your credit history is what lenders use to determine your credit worthiness. In other words, they use your past financial history to judge how likely you’re able to repay your debts in full and on time.

If you have a poor credit history or no credit at all, then lenders either don’t trust that you’ll be timely and consistent in your repayments, or they have nothing with which to assess your risk—and lenders aren’t about to give you the benefit of the doubt.

So, how do you go about building (or rebuilding) your credit history? There are lots of credit cards for bad credit, most of them being secured credit cards. Secured credit cards differ from other credit cards in that they require you to provide a security deposit that’s equal to or greater than the credit limit. Here are three of what we think are thebest credit cards in Canada for people with bad or no credit:

Home Trust No Annual Fee Secured Visa Card

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Highlights:

  • No annual fee
  • 19.99% interest rate
  • Your credit limit is set at the amount of the security deposit you put down
  • Applicants who have been discharged from bankruptcy are eligible to apply at any time

If you’re looking for a credit card with no annual fee but you don’t qualify for an unsecured credit card, then theHome Trust Secured Visa Card might be a good option for you. This card requires you to pay a security deposit equal to the amount of the credit limit you’d like. You can put down as little as $500 and as much as $10,000. This provides you with the opportunity to build your credit rating up at a rate that you’re comfortable with. If you want to use the card for small purchases to slowly regain creditors’ trust but you still want the freedom to buy those bigger ticket items, this card lets you do just that.

 

Alternatively, if you like the credit limit this card offers but would like a lower interest rate, you have the option to apply for the Home Trust Secured Annual Fee Visa Card. This card comes with an interest rate of 14.9% and an annual fee of $59, which you can choose to pay at $5 per month. This is an excellent alternative because applicants are just as likely to get approved for this card as they are for the no annual fee version, and yet the interest rate is five percentage points lower. This card would be the preferred choice for those looking to re-establish their credit rating and who trust themselves to not often carry a balance.

The Affirm MasterCard

affirm-mastercard

Highlights:

  • Annual fee of $84.00 ($7/month)
  • Interest rate of 29.99%
  • No security deposit required

The Affirm MasterCard is an unsecured credit card so it’s an excellent option for those who have bad credit but don’t want a card that requires a security deposit. It comes with a $3,000 credit limit and has a $7 monthly fee. The idea here is that they’re taking a bigger risk in offering a true line of credit to individuals with low credit ratings, so they’re asking for a fee to be paid monthly and not annually as a way to reduce this risk. Another way Affirm manages its risk is by requiring you to make a minimum monthly payment on your outstanding balance: either $30 or 4% of your balance—whichever is greater.

This card has an interest rate of 29.99% on all purchases and doesn’t have a cash advance option. This interest rate is extremely high and is designed to encourage users to rarely carry a balance, if ever at all. Since the whole purpose of getting a credit card for bad credit is to slowly regain the trust of lenders, it’s very important that you pay off your balance in full and on time with this card because with the combination of a $3,000 credit limit and a 29.99% interest rate, it’s very easy to slip into debt. There are no administration or pre-payment fees and you can use this card anywhere MasterCard is accepted. Once you’ve established a good rapport with Affirm and have built up your credit history, they can even re-evaluate and consider granting you an increased credit limit if that’s something you want.

Peoples Trust Secured MasterCard

Highlights:

  • $69.60 annual fee ($5.80/month; collected monthly)
  • 12.99% interest rate on purchases
  • 24.5% interest rate on cash advances

The Peoples Trust Secured MasterCard is a secured credit card with an incredibly low rate of 12.99% on all purchases. This is a good option for those who are trying to build a strong credit rating but may carry a balance every so often. However, this card requires you to make a minimum monthly payment on your balance: the greater of $10 or 3% of your outstanding balance. If you don’t meet this minimum requirement, the interest rate will go up to 24.5% on your next statement so it’s important to keep up with payments.

Virtually everyone who applies for this card is approved, so it’s an ideal card for those who have been discharged from bankruptcy, or have a rocky financial past. The only requirement besides being a Canadian resident is that you have a verifiable source of income. Similar to the Affirm MasterCard, this card’s annual fee of $69.60 is charged monthly at $5.80/month. Finally, the security deposit that you’re required to put down can be as little as $500 and up to a maximum of $25,000, which most credit cards don’t even come close to.

Source: RateHub.ca by Bassel Abdel-Qader  January 31, 2016

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