Category Archives: mortgage marketing

Mortgage rates, charges decisive factors for consumers

A combination of reasonable mortgage rates, no unexpected charges, and special features were the most important factors in consumers’ choice of mortgage originator, according to a recent survey conducted by financial services firm D+H.

The study’s results accompanied the increased popularity of the internet as a valuable resource for would-be borrowers, giving them more confidence in their transactions as well as making them more wary of hidden fees.

“People are asking the right questions. Even a caveman could find the lowest mortgage rates online within seconds. What you can’t learn as easily are the hidden costs, including mind-blowing penalties, inflated blend and increase rates (the rates lenders charge on any new money you add to your mortgage), ridiculous rates to convert from a variable mortgage to a fixed, aggravating fees to switch lenders, restrictions when porting your mortgage, and so on,” mortgage columnist and RateSpy.com founder Robert McLister wrote in a February 28 piece for The Globe and Mail.

McLister stated that the results pointed at the growing importance of a second informed opinion, apart from online information, in determining the best mortgage rates available.
 
“It’s no surprise, then, that two out of three borrowers value the person arranging their mortgage more than the lender itself. And they should. Lender reputation is immaterial compared to proper guidance and mortgage flexibility,” McLister said.

The survey also revealed that the largest contributor to consumer satisfaction is the absence of time pressure, which can be achieved by the broker going the “extra mile” to assist with the details.

“Besides time pressure, the survey found the biggest headaches for borrowers were paperwork, uncertainty about getting the best rate and finding the time to meet with a banker or broker,” McLister noted.

Source: MortgageBrokerNews.ca – by Ephraim Vecina | 02 Mar 2016 

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Big bank makes unique offer to try to entice clients to switch

Scotiabank is currently offering potential clients the chance to switch their mortgage over – and earn 24 free movie passes for their trouble.

Not the most enticing offer – it will save avid movie goers $355, based on ticket prices at downtown Toronto’s most central Cineplex.

However, the bank claims the switching process is easy and that it would even cover transfer and discharge fees.

A fee-free chance to for a client to switch their mortgage and earn free movie passes?

Not quite.

“Discharge and transfer fees – which are usually a couple hundred dollars — are separate form penalties,” Anson Martin, a broker with VericoFair Mortgage Solutions, told MortgageBrokerNews.ca. “Prepayment penalties can be in the thousands.”

Scotiabank does mention prepayment penalties on its website for the promotion. In the fine print, at least.

“Prepayment charges with your existing lender may be applicable if the mortgage has not reached the maturity date,” the bank writes.

This promotion is the latest in a long tradition of big bank ploys to entice other lenders’ clients.

Last September, CIBC ran an advertising campaign that promised clients could switch their mortgages over for free. And earn some cash.

The campaign – which was being pushed online and in print advertisement, including A-frame boards outside branches – told potential clients that, for a limited time, they could switch their mortgage to CIBC for free, and get up to 5% cash back.

A disclaimer did state that the “free” switch doesn’t include existing lender fees.

Source: MortgageBrokerNews.ca  by Justin da Rosa | 07 Jan 2016

Thinking of switching your mortgage? Sit down with and independent mortgage professional and explore all your options. Contact the Ray C. McMillan Mortgage Team or visit www.RayMcMillan.com to schedule your no obligation consultation.

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Toronto Homeowners Get $8,500 Richer Every Month, While Condo Owners Get The Shaft

Bicycle Bob/Flickr

Forget working. The real way to accumulate wealth is to buy a single-family house in Toronto, and wait.

OK, that’s bad advice. But given what’s been going in Toronto’s housing market, you can be forgiven for coming to a conclusion like that.

If you own an average single-family home in Toronto, your net worth has been growing by about $8,500 a month over the past year.

According to the latest numbers from the Toronto Real Estate Board, a single-family home in the 416 now averages $1,053,871, up 10.7 per cent from a year ago. Break down that increase by month, and you get around $8,500.

But in yet another sign of the growing gap between condos and houses, Toronto’s condo dwellers aren’t seeing anywhere near that kind of wealth growth.

The average Toronto condo is now worth $418,603, 5.6 per cent more than a year ago. That works out to a wealth gain of $1,925 a month. Condo owners are growing their wealth at less than one-quarter the pace of homeowners. In the 905 region around Toronto, condo owners are adding only $637 per month in wealth.

Condos just aren’t seeing the same rate of appreciation. While standalone homes in Toronto have grown by 34.8 per cent in price over the past three years, condo prices have gone up only 10.9 per cent in that time.

Say hello to the new face of wealth inequality in Toronto, where owning a back yard is a pass to riches, and owning a balcony is a pass to condo fees.

But so what, you may ask. This value is tied up in the home, it’s not like people can live off it.

Well, yes and no. A growing number of Canadians are taking out home equity lines of credit against the value of their house. The higher the house value, the more they can borrow, and some experts are getting worried Canadians have borrowed too much this way.

And there is also the wealth effect: People change their behaviour when they feel richer, generally buying more than they otherwise would.

This effect seems to be strong in Canada right now. It certainly helps to explain why consumer spending held up in Canada this year despite all the talk of recession, and why imports to Canada are strong even while exports are flailing.

So the money may be stuck in your home, but its effects on the economy are real.

Here’s a breakdown of how much wealth Toronto-area residents are accumulating per month off their real estate.

Single-family homes in Toronto (416):
$8,491 in wealth per month (avg. price $1,053,871, up 10.7 per cent in a year)

Single-family homes in GTA (905):
$6,404 in wealth per month (avg. price $732,852, up 11.6 per cent)

Condos in Toronto (416):
$1,925 in wealth per month (avg. price $418,603, up 5.6 per cent)

Condos in the GTA (905):
$637 in wealth per month (avg. price $307,295, up 2.2 per cent)

Source:  |  By  Posted: 10/06/2015 12:29 pm EDT

To get more information on home ownership and mortgage qualification visit: www.RayMcMillan.com

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Getting a Mortgage

Getting a Mortgage

Once your Offer to Purchase has been accepted, go to see your lender. Your lender will verify (and update, if necessary) your financial information and put together what’s needed to complete the mortgage application. Your lender may ask you to get a property appraisal, a land survey, or both. You may also be asked to get title insurance. Your lender will tell you about the various types of mortgages,terms, interest rates, amortization periods and, payment schedules available.

Depending on your down payment, you may have a conventional mortgage or ahigh-ratio mortgage.

Types of Mortgages

Conventional Mortgage

A conventional mortgage is a mortgage loan that is equal to, or less than, 80% of the lending value of the property. The lending value is the property’s purchase price or market value — whichever is less. For a conventional mortgage, the down payment is at least 20% of the purchase price or market value.

High-ratio Mortgage

If your down payment is less than 20% of the home price, you will typically need a high-ratio mortgage. A high-ratio mortgage usually requires mortgage loan insurance. CMHC is a major provider of mortgage loan insurance. Your lender may add the mortgage loan insurance premium to your mortgage or ask you to pay it in full upon closing.

Mortgage Term

Your lender will tell you about the term options for the mortgage. The term is the length of time that the mortgage contract conditions, including interest rate, will be fixed. The term can be from six months up to ten years. A longer term (for example, five years) lets you plan ahead. It also protects you from interest rate increases. Think carefully about the term that you want, and don’t be afraid to ask your lender to figure out the differences between a one, two, five-year (or longer) term mortgage.

Mortgage Interest Rates

Mortgage interest rates are fixed, variable or adjustable.

Fixed Mortgage Interest Rate

A fixed mortgage interest rate is a locked-in rate that will not increase for the term of the mortgage.

Variable Mortgage Interest Rate

A variable rate fluctuates based on market conditions. The mortgage payment remains unchanged.

Adjustable Mortgage Interest Rate

With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.

Open or Closed Mortgage

Closed Mortgage

A closed mortgage cannot be paid off, in whole or in part, before the end of its term. With a closed mortgage you must make only your monthly payments — you cannot pay more than the agreed payment. A closed mortgage is a good choice if you’d like to have a fixed monthly payment. With it you can carefully plan your monthly expenses. But, a closed mortgage is not flexible. There are often penalties, or restrictive conditions, if you want to pay an additional amount. A closed mortgage may be a poor choice if you decide to move before the end of the term, or if you want to benefit from a decrease of interest rates.

Open Mortgage

An open mortgage is flexible. That means that you can usually pay off part of it, or the entire amount at any time without penalty. An open mortgage can be a good choice if you plan to sell your home in the near future. It can also be a good choice if you want to pay off a large sum of your mortgage loan. Most lenders let you convert an open mortgage to a closed mortgage at any time, although you may have to pay a small fee.

Amortization

Amortization is the length of time the entire mortgage debt will be repaid. Many mortgages are amortized over 25 years, but longer periods are available. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run. If each mortgage term is five years, and the mortgage is amortized over 20 years, you will have to renegotiate the mortgage four times (every five years).

Payment Schedule

A mortgage loan is repaid in regular payments — monthly, biweekly or weekly. More frequent payment schedules (for example weekly) can save some interest costs by reducing the outstanding principal balance more quickly. The more payments you make in a year, the lower the overall interest you have to pay on your mortgage.

Closing Day

Closing day is the day when you finally take legal possession and get to call the house your home. The final signing usually happens at the lawyer or notary’s office.

These are the things that happen on closing day:

  • Your lender will give the mortgage money to your lawyer/notary.
  • You must give the down payment (minus the deposit) to your lawyer/notary. You must also give the remaining closing costs.
  • Your lawyer/notary
    • Pays the vendor
    • Registers the home in your name
    • Gives you the deed and the keys to your new home

Source: Canada Mortgage and Housing Corporation

For more information on getting a mortgage, contact the Ray C. McMillan Mortgage Team at 905-813-4354

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Broker: Lender staffing issues leading to last-minute deal issues

Lenders are understaffed and dealing with record volume, according to one former underwriter, which explains the increase in last minute audits and the resulting problems with files.

“There is often another level of review after the underwriter signs off on a deal before it gets funded; the underwriters sometimes miss something and it’s a function of underwriters being overwhelmed,” Tim Hill of Dominion Lending Centres Primex Mortgages told MortgageBrokerNews.ca. “Volumes for lenders are also as high as they’ve ever been, and a lot of documents are being looked at very late in the process.”

Those last minute reviews are done by an auditor that oversees underwriters’ work according to Hill, who worked as an underwriter for Street Capital for over three years before moving to the broker side of the business.

An increasing number of brokers are reporting issues late in the mortgage origination process with last minute audits.

For his part, Robert Clancy of Verico Safebridge Financial argues these last minute audits are being exacerbated by lenders who all interpret mortgage regulations differently.

“A lot of the time there is an issue with conditions being added on by lenders at the end of deal; all of a sudden lenders call and ask for more documents,” Clancy told MortgageBrokerNews.ca. “It seems to be the monolines grappling with the regulation changes; everyone seems to be interpreting them differently.”

One specific example Clancy encountered was when a lender requested – at the last minute –that a number of debts to be paid down.

“They requested this days before closing, and even though we showed them their calculations were wrong they still forced us to deal with it.”

Luckily Clancy was able to work with the client and eventually got the deal funded. But not all brokers have the same luck at the last minute.

Source: MortgageBrokerNews.ca by Justin da Rosa | 02 Sep 2015
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Your HomeBuyingTeam – What Professionals Should You Call On?

Your HomeBuyingTeam - What Professionals Should You Call On?

Your HomeBuyingTeam

What Professionals Should You Call On?

Even if this isn’t your first homebuying experience, you’ll want to get help from a team of professionals. Having the help of professionals will give you experienced and knowledgeable people for reliable information and answers to your questions. These are the people who can help you:
•Realtor
•Lenders or mortgage broker
•Lawyer or notary
•Insurance broker
•Home inspector
•Appraiser
•Land surveyor
•Builder or contractor

You will be doing a lot of interviewing to establish your team. Use this handy CMHC worksheet to help you keep track of the people you interview and the ones you finally choose.

The next sections describe each professional role.

The Realtor

Your realtor’s job is to:
•Help you find the ideal home
•Write an Offer of Purchase
•Negotiate to help you get the best possible deal
•Give you important information about the community
•Help you arrange a home inspection

Finding a Realtor

When looking for a realtor, don’t be afraid to ask questions — especially about possible service charges. Normally, the seller pays a commission to the agent. But, some realtors charge buyers a fee for their services. Use the CMHC worksheet Checklist for Evaluating Realtors to help you.
If you would like to know more about a realtor’s ethical obligations, go to the Canadian Real Estate Association’s website at www.crea.ca, or call your local real estate association.

The Lender or Mortgage Broker

Many different institutions lend money for mortgages — banks, trust companies, credit unions, caisses populaires (in Quebec), pension funds, insurance companies, and finance companies. Different institutions offer different terms and options — shop around!

Mortgage brokers don’t work for any specific lending institution. Their role is to find the lender with the terms and rates that are best for the buyer.

Finding a Lender or Mortgage Broker
•Ask around. Your realtor, another professional, family members, or friends may give you helpful suggestions.
•Look in the Yellow Pages™ under “Banks,” “Credit Unions” or “Trust Companies” for a lender and under “Mortgage Brokers” for a broker.
•Contact the Canadian Association of Accredited Mortgage Professionals at 1-888-442-4625, or visit the Association’s website at www.caamp.org.

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The Lawyer/Notary

Having a lawyer/notary involved in the process will help ensure that things go as smoothly as possible. You need a lawyer (or a notary in Quebec) to perform these tasks:
•Protect your legal interests by making sure the property you want to buy does not have any building or statutory liens, charges, or work or clean-up orders
•Review all contracts before you sign them, especially the Offer (or Agreement) to Purchase.

Finding a Lawyer

Law associations can refer you to lawyers who specialize in real estate law. In Quebec, contact the Chambre des notaires du Québec for the names of notaries specializing in real estate law.

Remember that a lawyer/notary should:
•Be a licensed full-time lawyer/notary
•Live/work in the area
•Understand real estate laws, regulations and restrictions
•Have realistic and acceptable fees
•Be able and willing to explain things in language you can easily understand
•Be experienced with condominiums, if that’s what you are buying

Lawyer/notary fees depend on the complexity of the transaction and the lawyer’s expertise.

Shop around for rates when choosing your lawyer/notary. Use the CMHC worksheet Checklist for Selecting a Lawyer/Notary to guide you.

The Insurance Broker

An insurance broker can help you with your property insurance and mortgage life insurance.

Lenders insist on property insurance because your property is their security for your loan. Property insurance covers the replacement cost of your home, so the size of your premium depends on the value of the property.

Your lender may also suggest that you buy mortgage life insurance. Mortgage life insurance gives coverage for your family, if you die before your mortgage is paid off. Your lender may offer this type of insurance. In this case, the lender adds the premium to your regular mortgage payments. However, you may want to compare rates offered by an insurance broker and by your lender.

Don’t confuse property insurance, or mortgage life insurance, with mortgage loan insurance.

The Home Inspector

Whether you are buying a resale home, or a new home, consider having it inspected by a knowledgeable and professional home inspector.

The home inspector’s role is to inform you about the property’s condition observed at the time of the inspection. The home inspector will tell you if something is not working properly, needs to be changed, or is unsafe. He or she will also tell you if repairs are needed, and maybe even where there were problems in the past.

A home inspection is a visual inspection. It should include a visual assessment of at least the following:
•Foundation
•Doors and windows
•Roof and exterior walls (except winter)
•Attics
•Plumbing and electrical systems (where visible)
•Heating and air conditioning systems
•Ceilings, walls and floors
•Insulation (where visible)
•Ventilation
•The lot, including drainage away from buildings, slopes and natural vegetation
•Overall opinion of structural integrity of the buildings
•Common areas (in the case of a condominium/strata or co-operative)

Finding a Home Inspector

It’s important to hire a knowledgeable, experienced and competent home inspector. In most areas of Canada, there are no licensing or certification requirements for home inspectors. Anyone can say that they are a home inspector without having taken any courses, passed tests or even inspected houses. So look for a home inspector who belongs to a provincial or industry association holds an accreditation that demonstrates training and experience, provides inspection reports, carries insurance, provides references and has strong experience with the type of home to be inspected.

While CMHC does not recommend any individual home inspector or association, CMHC supports a common national occupational standard for home inspectors such as the home inspection industry’s voluntary and independent national certification program.

Home inspector fees range, depending on the size and condition of the home.

The Appraiser

Before you make an offer, an independent appraisal can tell you what the property is worth. This will help ensure that you are not paying too much. In order to complete a mortgage loan, your lender may ask for a recognized appraisal.

The appraisal should include:
•Unbiased assessment of the property’s physical and functional characteristics
•Analysis of recent comparable sales
•Assessment of current market conditions affecting the property

Finding an Appraiser

Ask your realtor to help you find an appraiser.

The Land Surveyor

If the seller does not have a Survey or Certificate of Location, you will probably need to get one for your mortgage application. If the Survey in the seller’s possession is older than five years, it needs to be updated.

Remember that you must have permission from the property owner before hiring a surveyor to go onto the property. Ask your realtor to help co-ordinate this with the owner.

Finding a Land Surveyor

Search the web or Yellow Pages™ or ask your realtor to help you find a land surveyor.

#mortgagesmadesimple

Borrowing is tougher for self-employed

Homebuyers looking for a mortgage are finding conditions are getting tougher if they are self-employed, at a time when there is an increasing number of self-employed Canadians. Solid credit scores are multiple years in business are still not making it easy for business owners to buy their own home. Chad Oyhenart, a Vancouver-based mortgage broker at Dominion Lending Centres told The Financial Post that conditions are tougher as the result of rule changes over the past 7 years: “They just want to make sure that they’re not putting Canadians into situations that they can’t get out of, so that we don’t end up being the U.S.” Jeff Mark of Spin Mortgage also sounded a supportive note for tighter regulations commenting that they were too loose in the past. He says that the self-employed may have to take larger incomes from their businesses, meaning more tax to pay, in order to qualify for mortgages.
Source: MortgageBrokerNews.ca Steve Randall | 24 Jul 2015

Seniors Can Now Tap More Equity

Seniors Can Now Tap More Equity | Mortgage Rates & Mortgage Broker News in Canada

Earlier this year HomEquity Bank increased its maximum loan-to-value on a reverse mortgage to 55% (in some cases slightly more). It was a change made with little fanfare, but one that will provide necessary cash to thousands more senior homeowners.Prior to this change, the bank lent up to one-half of a property’s appraised value. Now, qualified seniors can access at least $20,000 more on a $400,000 property, for example. This money can be a lifeline when an elderly homeowner has immediate expenses (e.g., medical costs), but no other source of liquidity and a need to stay in their home.

“We are rather conservative,” said Yvonne Ziomecki, SVP, HomEquity Bank in response to why the bank hasn’t offered this high of an LTV in the past. “Having 29 years of actuarial history on repayments, etc., gave us comfort to move in that direction.”

The company confirms that these higher lending ratios are here to stay. “We wouldn’t have offered it up if we didn’t believe we can continue offering it,” she explains. Note that qualifying for a 55% LTV reverse mortgage requires that a borrower be more than 75 years of age and have a marketable home in a good location.

Sidebar: HomEquity Bank is getting ready to launch its new “Mortgage Broker Direct” service in September. For the first time, mortgage brokers will be able to submit deals directly to the bank via D+H Expert. The company will offer an official designation for approved brokers called the “Certified Reverse Mortgage Specialist.” Brokers will receive continuing education (CE) credits for completing the certification, specialized marketing support and compensation equal to that of selling a regular five-year fixed mortgage.

Source: Canadian Mortgage Trends  July 22, 2015  Robert McLister  

Bank of Canada slashes key rate as economy contracts, exports stall

The Bank of Canada is cutting its key interest rate for the second time this year, citing a larger-than-expected first half contraction and a “puzzling” stall in non-energy exports.

The central bank lowered its benchmark overnight rate by a quarter percentage-point Wednesday to 0.5 per cent, blaming faltering global growth, disinflation and low prices for oil and other commodities. The Canadian dollar fell more than a cent in the wake of the decision.

The bank stopped short of characterizing the economy’s first-half stall as a recession, even a mild one. But some economists say that is exactly what Canada is facing.

The latest rate cut marks a sudden about-face by Bank of Canada Governor Stephen Poloz, who has repeatedly insisted that the economic hit from the oil price collapse would be quickly offset by surging non-oil exports, such as car parts, lumber and machinery and equipment. He had characterized his earlier January rate cut as “insurance.”

But six months later the rebound remains elusive, in spite of a much cheaper Canadian dollar, now worth less than 80 cents (U.S.).

The bank acknowledged in its latest forecast, also released Wednesday, that the failure to get a lift from non-energy exports is “puzzling.”

Making matters worse a massive plunge in business investment – down 16 per cent in the first quarter – has become a dead-weight on the economy. The bank now says it expects investment in Canada’s oil patch to plummet close to 40 per cent this year, significantly worse than the 30 per cent it initially thought, as long-term investments in the oil sands are delayed or put on hold until the price of crude comes back.

A lower overnight rate typically prompts banks to cut rates on home mortgages and other loans – a situation that could exacerbate record household debt levels in Canada and add fuel to the hot housing market in cities such as Toronto and Vancouver.

But Mr. Poloz and his central bank colleagues say the risk of weak growth and disinflation outweighs the worry that Canadians may pile on more debt.

“While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment,” the bank said in its statement. “Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.”

The bank’s new forecast calls for a contraction in the first half of this year, with the economy shrinking at an annual rate of 0.6 per cent in the first quarter and 0.5 per cent in the second quarter. The bank does not use the word “recession,” although a recession is typically marked by two consecutive quarters of shrinking GDP.

Nonetheless, the bank said it expects growth for the entire year to hit 1.1 per cent – a sharp downgrade from the 1.9 per cent growth it forecast just three months ago. It’s calling for growth of about 2.5 per cent in 2016 and 2017.

The central bank said the Canadian economy won’t return to full capacity until the first half of 2017, versus its previous target of late 2016.

Canada’s fundamental problem is that it now has a distinctly two-track economy – one faltering badly because it’s tied to oil and other commodities, and another growing due to “solid” household spending and the recovering U.S. economy.

“As the second track gains strength and Canadian producers benefit from the depreciation of the Canadian dollar, it should re-emerge as the dominant one,” the bank said in its statement.

The non-energy economy makes up more than 80 per cent of the Canada’s GDP, but that side of the economy has been swamped by the effects of the oil price shock.

For now, the weight of the economic decline in Canada’s resource-dependent provinces is dragging on the national economy. Since last November, unemployment is up 1.3 percentage-points in the energy-intensive regions of the country, while retail sales are down nearly 1 per cent, along with steep declines in car and home sales.

It’s a vastly different picture in the rest of the country, including Ontario and Quebec, which depend more heavily on manufacturing exports.

The central bank put the blame on the U.S. and China, where growth “faltered in early 2015.” This has depressed prices for oil and many other commodities that typically drive Canada’s export-led economy.

Also Wednesday, the central bank matched the cut in the overnight rate by lowering the bank rate to 0.75 per cent from 1 per cent and the discount rate from 0.5 per cent to 0.25 per cent.

Source: BARRIE MCKENNA OTTAWA — The Globe and Mail Published Wednesday, Jul. 15, 2015 10:01AM EDT

Why Credit Advice Won’t Work the Same for Everyone

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It seems like everyone is offering advice on how to improve your credit score, but not all of it will work equally for you. That is because the credit scoring process takes into account many factors, and the same advice will affect people differently, depending on their unique credit report. One team member raised their score by almost 100 points in 30 days, but that doesn’t mean all consumers can accomplish the same results.

Here are some examples of why the same actions affect consumer’s credit scores differently:

Opening A New Credit Card

Many claim that opening a new credit card account will hurt your credit score, while others maintain that it can actually have the opposite effect. The fact is, opening new accounts has both positive and negative effects on your credit score, and whether or not the positives outweigh the negatives depends on your individual history.

Take a person we will call Fred. Fred has one credit card that he uses regularly and pays the balance in full every month. By acting so conservatively with credit, Fred hopes that he will have an excellent credit score. His score is good, but he is surprised that it is not much higher. If Fred opens up another credit card, he will expand his small credit history, increase the total amount of credit extended to him, and reduce his debt to credit ratio. You see, even though Fred pays his statement balance in full every month, his credit card issuer reports each balance to the credit bureaus as his current debt. This makes some sense, since it has no way of knowing that Fred will again pay his balance in full this month. Therefore, Fred actually has a considerable debt to credit ratio in the eyes of the credit bureaus. In Fred’s case, opening up a new account will almost certainly improve his score significantly.

Now consider his neighbor, a man we’ll call Ted. Ted loves credit cards, but like most Americans he tends to carry a balance. He is always the first to jump on a new offer for rewards and frequently tries to avoid interest charges by signing up for cards with promotional balance transfer rates. When Ted signs up for yet another new credit card, his credit score will most likely go down. If Ted has applied for several new credit cards in the last few months, another new account will hurt his score. Furthermore, his existing debt will likely make it hard for him to receive a large line of credit, so his debt to credit ratio will not drop by much. Finally, consumers like Ted who has trouble controlling their spending are the last people who should be using reward cards, which are designed to reward customers for spending more money.

Paying Off Debts

Molly has always struggled with debt. She has student loans, a car loan, and lots of credit card bills. As a consequence, she has never had great credit, even though she pays her bills on time. But now Molly has a new job and has decided to get her finances in order. Month after month she has been paying off her debts and within a few years she hopes to be debt free. Thankfully, she will see her credit score rise as her debts disappear. This makes sense, as lenders will be more comfortable loaning money to people who have fewer existing obligations.

On the other hand, her friend Polly doesn’t have that much debt, just one stubborn credit card bill. Unfortunately, Polly’s problem is that she has trouble paying her bills on time. Sometimes the bill is lost in the mail and sometimes she has trouble coming up with the money, but other times she just forgets to mail her checks on-time. Polly is also trying to improve her credit, and she decided to pay off her last remaining credit card debt.

To her surprise, doing so didn’t help her credit score very much. That is because she never had that much debt to begin with, and her record of late and missed payments was hurting her score far more than her debt was.

Other Reasons That Credit Scores Vary After The Same Actions

One of the biggest considerations one should take when deciding if a certain action will hurt or help their score is by understanding how much that action accounts for their overall credit score. For example, opening up a new line of credit won’t affect you nearly as much as paying off one of your balances because new credit only accounts for 10 percent of your overall score, while your balances (debt to credit) make up 30 percent of your overall credit score.

Making one move, like opening or closing a credit card account, may not be enough to swing someone’s credit score very much, especially if they have a long credit history. On the other hand, those with a limited credit history can help, or hurt, their credit scores much more quickly by taking a single action. Additionally, there are three major consumer credit bureaus, and not every action will be reported to every bureau. For example, a customer could apply for a new credit card, which may only generate a new inquiry on one or two of the major consumer credit bureaus. When that customer checks his or her credit with another bureau, the score will be unchanged.

What Will Always Improve Your Credit Score

If you pay your bills on-time, and carry very little debt, it is hard not to have an excellent credit score. Worrying about opening a new account, or slightly lowering your debt to credit ratio is just tinkering around the edges compared to the two major factors that make up the majority of your credit score: debt levels and payment history. Likewise, you can try every trick in the book, but if you are heavily in debt and have trouble making your payments on-time, your credit will always suffer. By paying your bills on-time and having very little debt, you will never have to worry about the minor effects of one thing or another.

Source: Huffington Post Posted: 07/06/2015 2:13 pm EDT This article originally appeared on www.comparecards.com/blog: Why Credit Card Advice Won’t Work The Same For Everyone.