Tag Archives: credit score

Why anyone who deferred mortgage payments should check their credit score

© Provided by The Canadian Press

TORONTO — Hundreds of thousands of Canadians have been negotiating with lenders over the past few months, hoping to hold off paying debt amid the COVID-19 pandemic.

Now, those payments are beginning to filter through the credit reporting system.

“We have seen the average number of accounts that are in a payment deferral status triple since before the pandemic,” says Eva Wong, co-founder and chief operating officer of Borrowell, which offers free credit scores and reports.

“It shouldn’t impact the credit score, but it should show up on the credit report.”

The Canadian Bankers Association said that as of June 30, 760,000 account holders had negotiated mortgage deferrals or skipped payments, while 445,000 had requested deferral for credit card debt.

According to Equifax, deferred payments — many agreed to as part of COVID-19 relief programs — don’t harm borrowers’ credit scores. But the payments must be reported in a certain way, and the status of these payments may not get reported to Equifax for up to 30 days.

It’s important to make sure these deferred payments are reported correctly to credit bureaus, because even one false late payment can drop a credit score by as much as 150 points, says Wong. Credit scores are used not only by lenders, but also checked by cellphone carriers, employers and landlords, Wong says. Because it takes time to correct a credit score error, waiting until you “need” your high credit score is a risky move, she says.

“Depending on the type of error, the longer it persists, the more negative the impact,” says Wong. “If it’s showing up as a late payment and it goes to month two, then it’s two months of missed payments as opposed to just one. So I would encourage people to check their credit report and make sure that everything on there looks right.”

Anne Arbour, a financial educator at the Credit Counselling Society in Toronto, says that Canada’s two credit-reporting agencies, Equifax Canada and TransUnion Canada, are data aggregators, and it is up to the lenders to create policies on how they report the deferred payments. It’s important for consumers to get clear documentation of their agreement with their lender — such as a bank — when it comes to how they are reporting deferred payments, she says.

“Get as much detail from the lender, from the creditor, as possible about what a deferral will mean and what their practices as far as reporting it — so, whether it will impact somebody’s rating or their score or not,” says Arbour. “And if there is any issue or concern, deal with the creditor first, getting as much written information as possible.”

Arbour noted that deferrals are not an automatic license to skip payments — not only must a formal agreement be struck, but many lenders may have explicit instructions on how interest or even late fees accrues while payments are halted.

Taylor Little, chief of Vancouver-based alternative lender, Neighbourhood Holdings, says that many people skipped payments based on reading about deferral programs, without actually checking to make sure whether the lender was offering deferrals or some other type of payment plan instead. Doing that can hurt a credit score, and likely won’t be counted as an error, he says.

When checking with lenders, Arbour says people should collect a copy of the agreement, a file ID or reference number, and the name of the agent with whom they spoke, in case this information is needed to file a credit score dispute down the road.

If a consumer notices something that might be wrong on their credit score —such as a deferred payment being counted as “late” — the lender is once again the first stop, she says.

“Going back to the creditor themselves is a good first step,” she says. “[Equifax and TransUnion] have worked closely with the Canadian Bankers Association, with the lenders, everybody to try and come up with a way to report any deferrals, whether it was mortgages or credit cards, in a way that wouldn’t penalize the consumer. But the onus ultimately was on and is on the creditors to change their systems.”

In addition to requesting a fix from the lender, consumers can ask Equifax or TransUnion to investigate a mismarked payment, through a credit report update form or investigation request form. Separately, consumers can also now put a “consumer statement” to a credit report to signal to lenders that something is being disputed. Equifax Canada gives an example: “Be advised that the negative accounts on my credit report are related to the Covid-19 pandemic. I intend to make these up as soon as I can find a job.”

Keeping on top of errors — and being quick to correct them if they happen — is easier if consumers stick with a routine and understand the parts of the credit scoring process, says Arbour. For example, free services that offer credit monitoring offer more frequent updates and are different from Equifax or TransUnion’s free yearly reports. Those annual reports from Equifax or TransUnion are also different from the formal scores checked by lenders in a “hard” credit check, she says.

She advised that consumers can take advantage of both credit monitoring services and free yearly reports.

“There’s no sort of one size fits all answer — very often mortgages don’t actually appear on credit reports,” says Arbour. “[Mismarked deferrals] haven’t been brought up as a concern just yet. . . . I think come September, it might be a different story. Once deferrals are over, unless people are checking their credit report, they won’t notice it unless they’re in a situation where they’re having to renew their term or renegotiate a rate or a debt management program.”

Source: Anita Balakrishnan, The Canadian Press – August 13, 2020

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How to Cancel a Credit Card Without Hurting Your Credit Score

It’s not as simple as just closing the card.

The act of canceling a credit card is easy. You just call your credit card company, ignore its pleas for your continued business, and tell it you don’t want its card anymore. But if things were really that simple, I wouldn’t need to write an article about it. Closing credit cards can have a significant impact on your credit score, so you need to know how to cancel your credit card in the right way. 

Sometimes the best decision is not to close the credit card at all, even if you’re not using it, while other times, you’re better off canceling it, though it may adversely affect your score. It’s an individual decision for every person with each credit card. Here’s what you need to know in order to make the right choice.Woman Cutting Credit Card

Image source: Getty Images

Does canceling a credit card hurt your credit score?

Let’s get this question out of the way upfront. Canceling a credit card will likely hurt your credit score, but how much depends on a few factors, like what your credit limit is, how much you charge to the card, and how long you’ve had it. You probably won’t be able to stop your score from taking a hit if you’re determined to cancel the card, but if you plan carefully, you can minimize how much it drops.

What happens when you cancel a credit card

Canceling a credit card raises your credit utilization ratio and it could also lower your average account age, both of which can hurt your credit score. Your credit utilization ratio is the ratio between the amount of credit you are using and the amount you have available to you. So for example, if you have a $1,000 limit and you carry a $200 balance one month, your credit utilization ratio is 20% on that card ($200/$1,000 x 100 = 20%). 

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Your credit utilization ratio across all of your cards matters too. So if you have two cards with a $1,000 limit and one card with a $5,000 limit and you cancel the card with the $5,000 limit, you’ll be bringing your total down credit limit from $7,000 to $2,000, which could have a big impact on your credit utilization.

Credit scoring models like to see a credit utilization ratio under 30% and the lower, the better, as long as it’s above zero. This indicates that you’re living comfortably within your means while a higher credit utilization ratio suggests you need a lot of credit to sustain your lifestyle and that you might be at a higher risk of default. When you cancel a credit card, you’re reducing your available credit, which will automatically drive your credit utilization ratio higher. It’s a pretty big deal because your credit utilization ratio makes up 30% of your credit score

Average account age is another factor in your credit score. It’s the average age of all the credit accounts, including loans and credit cards, in your name. Lenders like to see an older average account age because it indicates that you have more experience dealing with credit and it enables them to better predict how you’ll manage new credit. Canceling a credit card you only opened a few months ago may not have much of an impact on your average account age, but if you cancel the first credit card you ever got, your average account age will probably drop quite a bit and your credit score will drop accordingly.

Canceling a credit card does not absolve you of your responsibility to pay any outstanding debt and it doesn’t mean that any negative marks associated with that account, like late payments, just disappear. Derogatory marks like these stay on your credit report for seven years, even if you’ve closed the account.

What to know before you cancel a credit card

Canceling a credit card doesn’t always make sense because of the negative impacts the move can have on your credit. Here are a few factors you should look at to decide if it’s the right move for you:

  • Credit limit: Closing a card with a higher credit limit will have a more significant impact on your credit utilization ratio than canceling a card with a lower credit limit. 
  • Effect on credit utilization ratio: Look at your average spending across all of your credit cards for the last few months and compare this to your combined credit limits. Calculate your credit utilization ratio and then estimate how it’ll be impacted if you cancel a credit card. If canceling the card would push your credit utilization ratio over 30%, you might want to rethink the decision or plan to charge less to your credit cards going forward to keep your ratio within a desirable range. You could also open a new credit card to bring your credit utilization ratio back down again.
  • Account age: Canceling newer credit cards is safer than canceling older cards because it’ll have a smaller impact on your average account age.
  • Annual fee: It might still make sense to cancel your card if it charges an annual fee that you’re not recouping in rewards each year, even though doing so might temporarily hurt your credit score.
  • Rewards: You usually lose your rewards points once you cancel a credit card, so use any that you’ve accumulated before you close the account for good.
  • Balance: Canceling a card without a balance makes things a lot simpler, but you can still cancel most cards if you’re carrying a balance. You’ll have to decide if you want to continue making monthly payments to your issuer or transfer the balance elsewhere.
  • Your own attitude toward credit: If you’re someone who is easily tempted to spend more money than you have, canceling a credit card might still be the right play, despite the hit to your credit score. With less credit at your disposal, you’ll have a harder time running up costly debts you can’t pay back.

You should also know that some issuers will try to keep your business when you call to cancel by offering you better reward terms, a lower interest rate, or waived fees. Decide beforehand if any of these offers would convince you to stick with the card. If not, don’t let yourself be swayed by your card issuer’s pleas.

Should you cancel a credit card?

It’s usually best to leave your credit card accounts open even if you’re not using them. They’re there if you need them to make a purchase and they’ll help your credit utilization ratio and your average account age, which will, in turn, boost your credit score.

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You can take the card out of your wallet, but you shouldn’t lose track of it entirely. Keep it somewhere where others do not have easy access to it and continue to monitor your account at least once per month to ensure that someone isn’t running up fraudulent charges on it. A bill for a card you’re not using might also raise your suspicions. Your card issuer might decide to close your account for you after a period of inactivity. You can try contacting the company and asking them to keep your account open, but it doesn’t have to comply if you’re not using the card. Consider making a few small purchases with the card here and there if you want to keep your account active. You could also set up autopay with your credit card for a small bill and then pay your credit card bill automatically from your bank account every month.

Closing a credit card might make sense if it has an annual fee and it’s costing you money. But if you don’t want to do this, you might be able to call your card issuer and negotiate the annual fee. If you’re willing to downgrade your account, you might be able to get rid of it entirely. Canceling your card might also make sense if you’re trying to limit your access to credit to reduce the temptation to overspend. If either of these scenarios apply to you, you’ll just have to make peace with a slight drop in your credit score for the time being.

Whatever you do, don’t close multiple cards at once because this will have a much bigger impact on your score. Limit yourself to one credit card cancellation every six months at most. This will give you time to gradually adjust your spending so that you can keep your credit utilization ratio within a good range and it’ll give your remaining credit accounts time to age a little more, improving your score. 

You should also limit how often you apply for new credit or request credit limit increases. While not as severe as canceling a credit card, these requests result in hard inquiries on your credit report, which drop your score by a few points every time. 

How to cancel a credit card without hurting your score

The steps you’ll follow for closing your credit card depend on whether or not you have an outstanding balance.

With no balance

If you don’t have a credit card balance, canceling your card is pretty straightforward. Just do the following:

  1. Use up any rewards you’ve accumulated. 
  2. Switch any automatic payments currently set up under the card you intend to cancel over to a different credit card to avoid accidental late payments after the account has closed.
  3. Contact your credit card company and tell it you want to cancel your card. Some companies may allow you to cancel your card online, but you may need to call the company or send a letter. Your credit issuer’s website should provide you with instructions. Your card issuer should send you a written confirmation in the mail. Follow up if you don’t get one within a week or two of your cancellation request.
  4. Destroy the credit card. Even though the account is canceled, it’s better to be safe than sorry. Cut the card up or use a shredder. For metal cards, try contacting the card issuer to see if they offer disposal or recycling services.
  5. Monitor your credit account. It’s unlikely, but if your card issuer partially refunds your annual fee or you recently returned an item, a credit could show up on your account after you’ve closed the card. If this happens, contact the credit card company and request that they send you a check for the credited amount.
  6. Monitor your credit report. Check your report to make sure that the account is correctly reported as closed. You may want to wait a few weeks to check this because the card issuer may not report it to the credit bureaus immediately. You can check your credit reports once per year with each bureau for free through AnnualCreditReport.com.
  7. Adjust your spending. Make sure you’re not using more than 30% of your new, lower credit utilization ratio. If you are, try charging less to your remaining credit cards or consider requesting a credit limit increase on some of your other cards to lower your credit utilization ratio again. Note that if you do this, it may cause your score to drop by another few points because of the hard inquiry your card issuer will do on your credit report. But this won’t matter if you’re approved because your new, lower credit utilization ratio will have a larger impact on your score.

With a balance

The steps for closing a credit card with a balance are essentially the same as closing a card without a balance except you also have to figure out how you’re going to pay back your debt. Some issuers might enable you to continue making monthly payments to them just as you have been. You’ll keep your same interest rate and when your balance is finally gone, you and the card issuer will part ways for good.

Some people prefer to wash their hands of the credit card all at once. In that case, you’ll need to transfer your balance to another card or take out personal loans for debt consolidation and use these funds to pay off your debt before closing the card. 

You can apply for a new balance transfer card so your balance will temporarily stop growing, and you’ll have a chance to pay it back interest-free during the 0% APR intro period. But be aware that there are often fees associated with a balance transfer, so you may still end up paying back a larger amount. Personal loans give you a predictable monthly payment, but their interest rates can also be high, particularly for those with poor to fair credit.

Waiting to close your card is also an option if you have only a small balance. Evaluate all your choices before deciding which is right for you. If you decide to continue paying your card issuer for now, you can always decide to take out a personal loan later to get rid of your obligation to the credit card company.

Canceling a credit card is a simple activity, but it requires a lot of careful thought in order to minimize its impact on your credit score. Go through the information above to decide if it’s the correct decision for you, and if it is, follow the recommended steps to close your card with minimum impact to your score

Source: http://www.Fool.com – April 24, 2020

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UNDERSTANDING HOW YOUR CREDIT RATING IMPACTS YOUR HOME BUYING OPTIONS

CreditScoreChart-1-e1524683918384 

 

Raymond C. McMillan, BA., Mortgage and Real Estate Advisor – May 17, 2020

In our previous blog we briefly touched on the importance of your credit profile and debt, and how it affects you in the mortgage application process. Your credit profile or credit report gives the lender a snapshot at the way you manage your finances, so they can determine if you are a good or bad credit risk when it comes to lending you money. So how is your credit profile or credit score determined? There are five categories that impact the calculation of your credit score. They are:

  1. Types of Credit
  2. New Credit
  3. Length of Credit History
  4. Amounts Owed
  5. Payment History.

Each category has a weight that is used in your credit score calculation and impacts your credit rating.

TYPES OF CREDIT used by you will have an impact on your credit rating. What do we mean by type of credit? Here we are referring to the types of lenders that currently hold any loan you have outstanding. Someone who has finance company credit products and department store credit cards will usually have a lower credit score than someone who uses the financial products of major banks, credit unions and trust companies. Similarly, financing your automobile through the manufacturers finance division or your financial institution will also more positively impact your credit score than using a secondary automotive finance company.

NEW CREDIT also has an impact on your credit score calculation. A high amount of new credit accounts will usually have a lender asking questions. You may wonder why? Usually it is because it is usually an indication of two things, the person has had credit issues in the past and are currently rebuilding their credit rating or they are a credit seeker trying to get access to as much credit as they can in a short space of time. The former is not a major issue for most lenders, providing there is a reasonable explanation, but the latter could be a red flag for some lenders.

LENGTH OF CREDIT HISTORY has a relatively significant impact on your credit score. The longer you have had credit products, the more comfortable the lender will be with you as it displays financial maturity and responsibility. So, it is important to keep that first credit card you ever got with a five hundred dollar credit limit when you sixteen or seventeen years old. While most lenders will want to see a credit profile that is one to two years old, a recent credit profile with a 800 credit score may not be as impressive as a 680 credit score that has reported for more than ten years. Mortagge lenders want to see more than just a high credit score, they want to see how you have managed your debt and credit repayment over an extended period.

credit

AMOUNTS OWED on your credit cards has the second highest impact on calculating your credit score. When applying for a mortgage, lenders are more reluctant to loan money to potential homebuyers who have high amounts of consumer debt – either revolving or instalment. If the amounts owing on your credit cards are at or near the limit for most of the credit reporting cycles, this will significantly lower your credit score. However, of all the variables that impact your credit score, this is perhaps the easiest to remedy. If you have an established credit profile with no payment delinquencies but have credit cards that are all at the limits, paying them off or down to less than half of the credit limit can see your credit score increase by several points in a month to two months.

PAYMENT HISTORY is our final and perhaps most important variable in computing your credit score. The approach here is quite simple – pay your bills on time to maintain a decent credit rating. I always say, “bad things sometimes happen to good people” and these bad things could be anything from job loss to illness to divorce, could significantly affect your ability to pay your bills on time. If you find yourself in any of these situations my advice is to contact your credit grantor and let them know your circumstances so they can work with you and protect your credit rating. It is important to make your payments on time both on your credit cards and instalment loans and avoid late payments and delinquencies. Most mortgage lenders will look at your payment history over the last year or two when reviewing your application to make a lending decision.

Keep in mind a poor credit score is not a life sentence and can be fixed with a few steps. In the case of delinquent debt that has been transferred to a collection company, settling that debt and repairing your credit is a quite simple process.

As a consumer, it is important to check your credit profile periodically to ensure there are no inaccuracies. To check your credit score, you can contact one of the three major credit reporting agencies: Equifax Phone: 800-685-1111, Experian Phone: 888- 397-3742 and TransUnion Phone: 800-909-8872.

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The writer: Raymond McMillan is a mortgage broker and real estate consultant and principal of The McMillan Group who has been in the banking, mortgage and real estate industry since 1994. He has been licensed as a mortgage broker since 1999 and has helped many people purchase their homes and invest in real estate. You can reach him at 1-866-883-0885 or visit www.TheMcMillanGroupInc.com

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Thinking about deferring your mortgage?

Payment due

News that Canadian financial institutions were offering some mortgage deferrals sent investors running to the banks in early April, asking for a stay on their payments as personal incomes and investment portfolios were being wiped out by the coronavirus pandemic. Those deferrals seem like a lifeline for investors facing a liquidity crisis, but one leading mortgage broker thinks the impacts of a deferral need to be considered closely.

Dalia Barsoum, president and principal broker at Streetwise Mortgages, says that investors should consider alternatives to mortgage deferrals. She explained that these deferrals aren’t gifts or grants, as they come with a cost, a likely increase to future payments, an impact on future financing availability and a wider implication for an investor’s credit. Barsoum says despite the pain investors are feeling, they shouldn’t just take mortgage deferment as their first line of support.

“We look at mortgage deferrals as a last resort tool for investors to utilize to help ease financial destress,” Barsoum says.

Barsoum outlined what some of those sources of financial distress are. The primary pressure on real estate investors stems from unemployment, both the loss of their own job or, if they own a rental property, the loss of a tenant’s income. The temporary collapse of Airbnb, too, has resulted in an increase to rental stock in some Canadian markets, putting downward pressure on rents. Further, softening property valuations in some markets, have made it more challenging to extract equity when it is needed most. Even committed deals, not yet closed, might be torpedoed by a borrower’s inability to get a mortgage. The financial pressures on a real estate investor are widespread, perhaps enough to make mortgage deferral seem like the right option. Barsoum says investors need to look at the long-term implications of that short-term fix.

Her first concern is cost, explaining that interest will accrue on the deferred amount for the duration of the period. Each lender, too, applies its only methodology of repayment for the accrued amount after the deferral period. Investors need to know what that post-deferral arrangement will look like before they sign off on anything.

That methodology could also result in an increase to future monthly payments. That increase will vary based on the mortgage size, interest, and duration of the deferral. An increase in the debt load will, as well, likely impact an investor’s ability to qualify for future financing, especially if their new  payments are higher across several properties within the portfolio.

Though a deferral is different from a default, and should not have any negative impact on credit, that requires an adjustment to lenders’ systems allowing them to report deferrals in the right way. Barsoum thinks that the sheer volume of deferral requests has increased the risk of reporting errors.

“If you are considering a deferral and can wait on it another month, then please do so to allow time for the first round of deferrals to go through the systems and see how that turns out,” Barsoum says. “Further, if you have chosen to defer by now, then please monitor your credit report for the next 3 months.”

Current financing arrangements, too, could prove challenging to obtain for investors with an active deferred payment. The logic, as Barsoum sees it, is that in taking a deferment an investor has told the lender whether they “can or can’t” afford the payment. In such a binary situation, taking the deferment puts you in the “can’t pay” camp, which carried long-term implications.

“My suggestion is to first examine your finances, challenges and plans with your current mortgage advisor,” Barsoum says. “Come up with an action plan before jumping on mortgage deferrals as the first line of support because of panic, fear of the unknown, or fear of missing out on this support tool.”

Source: Canadian Real Estate News – by David Kitai 06 May 2020

 

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Deferred Mortgage Payments: A Credit Score Gamble?

Last week, the President of the Canadian Bankers Association announced that all six major banks would offer deferral payments on their mortgages and other credit products. Just like many public announcements over the last couple of months, many were left with more questions than answers.

One question that still has yet to be answered is, how deferred mortgage payments might affect your credit score? Equifax recently announced, “In the event that a [lender] makes a credit relief or payment deferral program available to its consumers to opt out of making monthly payments during the pandemic, Equifax’s expectation is that the [lender] would take actions on its system to ensure that it does not report any derogatory/missed payment information to the credit bureaus that is misaligned with the program it has implemented.”

millennials in debtScott Hannah, B.C.-based CEO of the non-profit Credit Counselling Society, was quoted in the Globe and Mail as saying, “I don’t see creditors punishing consumers for being as responsible as they can under circumstances beyond their control.”

Many financial professionals have been posting messages online and sending emails to reassure the public and their clients that a deferral payment will not affect their credit score.

I agree that Canadians should not have their credit affected by deferred payments, although I predict a much different reality for consumers starting April 1. Lenders update the payment history of each credit account electronically to Equifax and TransUnion.

In order for these deferred payments to not be reported to the credit reporting agencies as late, as Equifax alluded too, the lender would need to “take actions on its system to ensure that it does not report any derogatory/missed payment information to the credit bureaus.”

Lenders big and small have been bombarded with phone calls that have put pressure on their personal and electronic systems. Are you willing to gamble your credit score and assume that every lender has updated its reporting system?

Millions of Canadians have found errors in their credit reports. For over a decade, I personally have received thousands of calls from consumers stating that a customer service rep told them one thing, only to find out that it was reported incorrect on their credit report.

In reality, it doesn’t matter what the customer service rep, the government, or what the industry experts tell you. If the lender’s internal system sees it as a late payment, that is how it will report. No one will know for sure if all these deferred payments will report correctly or not.

might a mortgage payment deferral affect your credit scoreWe can all agree that the amount of deferred payments over the coming months is unprecedented. For this reason, I expect an increase in the amount of mortgage, loan and credit card payments reporting incorrectly on Canadian credit reports.

Even with the chance that a deferred payment will show up as a late payment, many Canadians will still need to take advantage of such programs being offered by banks.

For those that don’t really need to defer their payments this month, I suggest you wait until it is necessary. A deferred payment is not free money. You will have to pay the lender back with interest.

Any delay is just going to increase the amount on future required payments. My hope is that, going forward, underwriters or those reviewing credit applications will be lenient on any late payments during the COVID-19 pandemic.

However, I am positive that the credit scoring system will not show much sympathy. On average, one late payment will drop your score 20 to 40 points.

A low credit score, regardless if it was caused by an error or not, will make it much more difficult to qualify for best-rate financing, renting, some employment opportunities and discounted insurance premiums. This is not to say your life will be over, but it will take at least 6 to 12 months for your credit to recover.

For those who have no choice but to request a deferred payment, here are some ways to protect your credit.

  1. Request electronic or written confirmation that the payment is being deferred.
  2. Ask for the employee number or service rep’s name that confirmed your deferred payment.
  3. Write down the day and time you talked to the customer service rep.
  4. Place all supporting documentation and record keeping in a safe place where you will actually remember where to find it.
  5. Track both your Equifax and TransUnion credit reports for at least the next few months
  6. If you do see an error, reach out to your lender and the credit reporting agencies to open up a dispute.

mortgage payment relief announcedI’m sure the thought of making another call might be overwhelming for the hundreds of thousands of Canadians who have already spent hours on the phone to request the deferred payment.

For anyone who has something better to do than to spend hours listening to the annoying automated voice and elevator music, I suggest you start with suggestion number three.

I don’t want to create panic or be like Chicken Little saying the sky is falling. The point I sincerely want to get across is that reporting errors are common and always have been.

It is unrealistic to think there won’t be any errors as a result of the increased demand for deferred payments. Regardless of what happens, now is the perfect time to monitor and learn how to better protect your credit.

Source: Mortgage Broker New
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Five Tips to Increase Your Credit Score Quickly

tips to improve your credit score
In order to qualify for certain mortgage and loan products, a minimum credit score is essential. Even if your score is sufficient to qualify, you might find the rates being offered will be lower than if you had a higher score.

Having worked with thousands of personal credit histories over the years, we have developed some strategies that sometimes give you that much needed quick score boostsort of like jumper cables for credit!

tips to improve your credit scoreHere are a few scenarios this might help with:

  • You are being pre-approved for a mortgage, but your bank or broker remark your score is too low and you don’t qualify.
  • You want to qualify for a mortgage AND a home equity line of credit (HELOC), but your lender says you need a higher score to get both.
  • You are working with a mortgage broker who is arranging a mortgage with a B-lender for you. She tells you that your interest rate will be lower if your Equifax Fico score is over 680.

And it’s not just about homeownership…

  • You are preparing your pitch to prospective landlords. These days, that often includes your credit report. Your chances will be better if your score is in the 700s or even 800s.
  • You want to apply for a personal line of credit or a high-end personal credit card, but your score is too low.

1. Use The Optimal Utilization Strategy

When maximizing your personal credit score, you should look at your utilization of available credit for each individual credit facility. By this I mean what percentage of your available credit is the balance being reported?

Percentage utilization can have a significant impact on your personal credit score. Equifax Canada states utilization has a 30% weighting on your personal credit score.

Optimal Utilization Strategy for credit scoreOne scenario: maybe a furniture store or a home improvement store offered you “don’t pay for one year.” The balance you are carrying on this card might be relatively small, but if it’s at or over the actual card limit, this is dragging down your personal credit score. Consider paying it off now!

Another scenario: suppose you have three credit cards, each with a limit of $10,000.

And let’s say one card has a balance owing of $9,900 and the other two have zero balances. This might happen because you are trying to earn rewards on one particular card, or maybe you said yes to a balance transfer promotional offer.

Chances are your credit score is lower than if the usage was spread across the three cards equallyi.e., each with a balance owing of $3,300, or 33% of the limit.

Overall, your usage remains unchanged, but now you no longer have an individual card reporting at 99% utilization.

If you can afford to cover or reduce the balance owing on the one with a balance of $9,900, you should see a nice little score boost.

2. Use the Statement Date Strategy

It may be that the best thing for you to do is simply reduce balances owing on your credit facilities. If time is of the essence, you should plan this carefully and do it in the correct order.

Gather up your most recent available statements for all relevant credit facilities. And note the day of the month when the statement was printed. Most of the time it’s the balance on that statement date that is being reported to the credit bureau.

And give or take a day, it is safe to assume that same day of the following month is when the next statement will be issued.

So, plan your payments accordingly. And allow several business days for online payments to process in time. If you are paying a credit card issued by your own bank, you should see transfer payments being processed either instantly or overnight.

3. Pay It Down and Keep It Down

pay down your debtThis is especially important when your limits are not very large. Suppose you are a model citizen who uses her credit card frequently, and pays the balance in full every month after receiving the monthly statement, and before the due date.

That is the “correct way” to manage your credittaking advantage of the grace period you are given by all card issuers.

But these days, there is little benefit to trying to use up the entire grace period because current account interest rates are so low they are pretty much negligible. It’s far better to pay your balance in full before your statements come out. You are even more of a model citizen, and now the balance being reported to the credit bureau will always be extremely small, if anything.

4. Exercise All Dormant Credit Cards and Lines of Credit

Some people have credit facilities they never use. People tend to favour one particular credit card (maybe we like their rewards program) and we might neglect our other cards. And most of the time we don’t even need our personal line of credit.

If you are trying to maximize your credit score, it is good to use all available credit fairly regularly, even if it’s just for a nanosecond.

It will rarely be correct to close these older credit facilities since they are contributing ‘score juice.’ Equifax Canada states your history can have a 15% weighting on your personal credit score.

These credit facilities can become stale and may not be not pulling their weight on your personal credit history. Update the DLA (date of last activity) with a modest transaction and then pay it online immediately. If it’s a personal line of credit, just transfer $10 to yourself and the next day transfer back $10.50.

If you notice you have credit cards that have not seen daylight for months or years, take them to the supermarket or gas station, use them just once, and pay online right away. After the next statement these cards will report the date of last activity as the current month and year, and that may give you some much-needed points.

5. Scour & Clean All Reporting Errors

There might be some incorrect information in your personal credit history that’s needlessly dragging down your score.

A few examples include:

  • You have two or more personal profiles with the credit bureau and your information is scattered and diffused. Combining it all into one credit report could well increase your score and strengthen your look. (This often happens to people whose name is hard to spell, or who have legally changed their name).
  • Late payments being reported when it’s not you. Maybe you have a relative with the exact same name.
  • That router you returned to the cable company is showing as a collection; but in fact you returned it to the local store.
  • You completed a consumer proposal and all the debts included in the proposal should be reporting zero balances and should not carry an “R9” rating. This generally means an account has been placed for collection or is considered un-collectible.
  • There may be incorrect late paymentsEquifax Canada states payment history has a 35% weighting on your personal credit score.

Mortgage brokers can fast track an investigation with Equifax Canada for you. What might take you two months, we can get done in a few days. Keep that in mind if time is of the essence.

improving your financial healthThe Takeaway

This overview is a fairly simplistic way of looking at your personal credit report and highlights initiatives specifically intended to give your credit score a quick boost. These tips are not necessarily the same as when you are managing for optimal credit health or interest-expense minimization.

Ideally, you are working with someone who understands all the nuances and who can help you determine what your priorities should be.

Source:CanadianMortgageTrends – 
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The House passed Ayanna Pressley’s credit score reform bill. Here’s what it would do

BOSTON, MA - 01/20/2020 Congresswoman Ayanna Pressley speaks during a panel conversation at the annual MLK Memorial Breakfast Committee, the nations longest-running event honoring the legacy of Dr. Martin Luther King Jr. The event hosted an audience of over 1,350 guests including business, civic, community and religious leaders.  Erin Clark / Globe Staff
Rep. Ayanna Pressley speaks during a panel conversation at the annual MLK Memorial Breakfast last week in Boston. –Erin Clark / The Boston Globe

Rep. Ayanna Pressley says she is “thrilled” that the House of Representatives passed her bill to reform the credit report system, though the legislation’s future in the Senate is unclear.

The House approved the Comprehensive Credit Reporting Enhancement, Disclosure, Innovation, and Transparency (CREDIT) Act on a mostly party-line vote Wednesday afternoon.

Pressley — who has championed often-arcane financial reform bills during her first term in Congress — says the legislation would address a “fundamentally flawed” system that can impede upward economic mobility in a country where “our credit reports are our reputations.”

“When credit reports determine where you can live, work and how much you will have to pay for everything from a car to a college degree, consumers deserve a system that ensures equity, transparency and accountability,” the Massachusetts congresswoman said in a statement. “American families are finding themselves trapped in cycles of debt, simply for trying to afford basic needs like healthcare and education.”

Pressley also made her first House floor appearance after revealing she had lost her hair due to alopecia to speak in support of the bill Wednesday.

She also later tweeted about the landmark day.

The Comprehensive CREDIT Act includes measures to make it easier for the estimated 20 percent of consumers who have a “potentially material error” on their credit report to seek corrections; limit the use of credit scores for employment purposes; expand the opportunity for student loan borrowers to improve their credit scores; restore credit to victims of predatory agencies; ban the reporting of debt incurred from “medically necessary procedures” and delay the reporting of other medical debt; shorten the time that most adverse credit information stays on a report from seven years to four years, and from 10 years to seven years in the case of a bankruptcy; and bolster the Consumer Financial Protection Bureau’s oversight of the industry.

According to CFPB data, the watchdog agency has received more than 326,000 complaints against credit reporting agencies since 2012, which accounts for nearly 22 percent of the total complaints filed during that time period.

According to Pressley’s office, the Comprehensive CREDIT Act comprises tenets of several other bills introduced by fellow members of the House Financial Services Committee. However, the Boston Democrat authored the student loan-focused section of the bill, which would:

  • Establish a credit rehabilitation process overseen by the CFPB for borrowers facing economic hardship to repair their credit profile.
  • Prohibit credit reporting agencies from including any information on a credit report relating to a delinquent or defaulted student loan after the borrower makes nine on-time monthly payments.
  • Provide a grace period for borrowers seeking rehabilitation but experiencing significant financial hardship or other extenuating circumstances such as certain military deployments or residing in an area impacted by a major disaster.
  • Require private lenders offering repayment plans to borrowers seeking rehabilitation to offer affordable monthly payments and additional assistance.

Student debt has become an increasing burden for students in Massachusetts. A study in 2018 found that the average debt load for Bay State graduates increased by 77 percent between 2004 and 2016, faster than in any other state in the country except Delaware. According to Pressley’s office, more than 855,000 borrowers owed a total of $33.3 billion in student debt last year in Massachusetts — and nearly 100,000 are behind on their loans.

“Even if we wipe out all student debt tomorrow, the devastating impact on consumers’ credit would remain for years to come,” Pressley said in her speech. “For that very reason, we must give folks a real chance at recovery and repair.”

The bill passed the Democrat-controlled House by a 221-to-189 margin. With the exception of two moderate Democrats who joined Republicans to vote against the legislation, the vote was divided by party lines.

For the legislation to proceed any further, Democrats will likely have to wait until at least another election. Sen. Mitch McConnell, the Republican-controlled Senate’s majority leader, has repeatedly ignored the hundreds of bills passed by House Democrats.

Massachusetts state lawmakers have also recently proposed new protections for student borrowers in the wake of relaxed federal oversight under President Donald Trump.

Source: Boston.com – Boston News – , January 30, 2020
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Those who think they are financially literate may be a bigger risk

Many Canadians are taking risks with their financial security and some of those that say they know better are building up higher levels of debt.

A new survey shows that 67% of respondents said that they are financially literate but when tested two thirds are not repaying credit cards in full each month (30% believe making the minimum payment stops interest charges); 72% are not saving on a regular basis; and 43% are not tracking their monthly expenses or spending habits.

The survey from loan search and comparison platform Loans Canada also reveals that 46% of respondents are ‘loan stacking’ or taking on multiple loans from several lenders for emergency funds or just to cover everyday expenses.

When arranging a loan 60% do not call the lender and 38% don’t compare lenders.

Almost half of the credit-constrained Canadians carry high-interest debt in the form of payday loans (45%) and credit cards (55%).

“The purpose of this survey was to learn more about credit-challenged Canadians and the role their financial literacy plays in the financial decisions they make.” said Loans Canada CTO Cris Ravazzano.

Source: Real Estate Professional – by Steve Randall 24 Jan 2020

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Canadians Need Guidance With Their Mortgages

That’s the takeaway from a national survey released this week by Rates.ca, which found half of Canadians aren’t aware of the mortgage options available to them.

Not only that, but Canadians are lacking in some other basic mortgage trivia, with an astounding 9 out of 10 respondents not knowing that mortgage interest is charged semi-annually:

  • 28% think interest is compounded monthly;
  • 17% think it’s bi-weekly;
  • 17% think it’s annually;
  • 28% just have no idea.

Should we be concerned?

confused mortgage consumerDustan Woodhouse, President of Mortgage Architects, and a former active broker who has written multiple educational mortgage books, thinks so.

“Sounds about right. We know about what we pay attention to, i.e., The Kardashians,” he wrote to CMT. “The material concern in this is how easy it makes it for the government to over-regulate the industry, with clients blaming the banksrather than the appropriate parties. This disconnect is deeply concerning.”

Perhaps even more concerning is the fact that only four out of 10 Canadians (39%) know they can avoid paying default insurance on their mortgage if they make a down payment of 20% or more.

With default insurance running anywhere from 45.85% of the mortgage value, we’re talking some serious dinero being spentpotentially unknowingly and unnecessarily.

So, what can be done? Woodhouse admits there are no simple answers, but says making mortgages more tangible to borrowers would be a good place to start.

“The root issue is making mortgages interesting and relevant to clients more often than when they need one,” he said. “It needs to be all about housing, not simply mortgages.”

Paul Taylor, President and CEO of Mortgage Professionals Canada, agrees.

“Unless you deal in mortgages, you only talk about them, generally, once every five years,” he said. “I’m sure at the time of signing, the borrowers understood what their payment obligations were and the schedule; after that, the rest of the information provided was likely filed under ‘nice to know but not relevant enough to me to retain.’”

Making the Case for Mortgage Brokers

With a growing trend towards “do-it-yourself” online mortgage shopping, we wondered if these survey results reinforce the need for mortgage brokers in guiding uninformed borrowers about their mortgage options.

mortgage broker helping clients“Big time…more than ever brokers are required,” Woodhouse said.

Taylor added that the stats “clearly demonstrate the need for professional and impartial advice at the time of purchase/renewal/refinance. And while some may suggest they are comfortable purchasing online without counsel, I think we can see that is inadvisable in almost all cases.”

Taylor pointed to the UK as an example. Following the crash of 2008, he noted the country adopted several policies by 2014, including disallowing borrowers to be able to self-declare income, and requiring mortgage consumers to be provided mandatory advice on mortgage products.

“The last point, I think, would likely begin to receive international discussion/attention if online sales begin to increase too quickly given the data this survey demonstrates,” Taylor said. “Given the size of these loans, the personal liability and the potential interest-cost difference for as little as a quarter-point in interest, I expect there may be some scrutiny on consumer outcomes for these self-serve options.”

Additional Survey Tidbits

The Rates.ca survey revealed some additional interesting findings about Canadians’ knowledge gap when it comes to financial products, including:

  • Nearly 7 out of 10 Canadians (68%) aren’t aware that interest on credit cards is calculated daily.
  • 30% admitted they are unlikely or somewhat unlikely to make the minimum monthly payments on their credit cards.
  • 40% of respondents admitted to not knowing their credit score.
  • 43% said they felt comfortable negotiating their mortgage over the internet.
  • And 94% believe schools should place greater emphasis on teaching financial literacy.
Source: Canadian Mortgage Trends – Steve Huebl 
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Why 4 websites give you 4 different credit scores — and none is the number most lenders actually see

These three consumers looked up their credit score on four different websites and each got four different results. (Jonathan Stainton/CBC)

The most popular credit score that lenders use in Canada can’t be accessed directly by consumers

Whether through ads or our own experiences dealing with banks and other lenders, Canadians are frequently reminded of the power of a single number, a credit score, in determining their financial options.

That slightly mysterious number can determine whether you’re able to secure a loan and how much extra it will cost to pay it back.

It can be the difference between having a credit card with a manageable interest rate or one that keeps you drowning in debt.

Not surprisingly, many Canadians want to know their score, and there are several web-based services that offer to provide it.

But a Marketplace investigation has found that the same consumer is likely to get significantly different credit scores from different websites — and chances are none of those scores actually matches the one lenders consult when deciding your financial fate.

‘That’s so strange’

We had three Canadians check their credit scores using four different services: Credit Karma and Borrowell, which are both free; and Equifax and TransUnion, which charge about $20 a month for credit monitoring, a plan that includes access to your credit score.

One of the participants was Raman Agarwal, a 58-year-old small business owner from Ottawa, who says he pays his bills on time and has little debt.

Canadian company Borrowell’s site said he had a “below average” credit score of 637. On Credit Karma, his score of 762 was labelled “very good.”

As for the paid sites, Equifax provided a “good” score of 684, while TransUnion said his 686 score was “poor.”

Agarwal was surprised by the inconsistent results.

“That’s so strange, because the scoring should be based on the same principles,” he said. “I don’t know why there’s a confusion like that.”

The other two participants also each received four different scores from the four different services. The largest gap between two scores for the same participant was 125 points.

The results when three consumers checked their credit score using four different websites. (David Abrahams/ CBC)

 

The free websites, Borrowell and Credit Karma, purchase the scores they provide to consumers from Equifax and TransUnion, respectively, yet all four companies share a different score with a different proprietary name.

Credit scores are calculated based on many factors, including payment history; credit utilization, which is how much of a loan you owe versus how much you have available to you; money owing; how long you’ve been borrowing; and the types of credit you have. But these factors can be weighted differently depending on the credit bureau or lender, resulting in different scores.

So, which credit score is giving Agarwal the clearest picture of his credit standing?

Marketplace learned that none of the scores the four websites provide is necessarily the same as the one lenders are most likely to use when determining Agarwal’s creditworthiness.

We spoke with multiple lenders in the financial, automotive and mortgage sectors, who all said they would not accept any of the scores our participants received from the four websites.

“So, we don’t know what these scores represent,” said Vince Gaetano, principal broker at MonsterMortgage.ca. “They’re not necessarily reliable from my perspective.”

All consumer credit score platforms have small fine-print messages on their sites explaining that lenders might consult a different score from the one provided.

‘Soft’ vs. ‘hard’ credit check

The score that most Canadian lenders use is called a FICO score, previously known as the Beacon score. FICO, which is a U.S. company, sells its score to both Equifax and TransUnion. FICO says 90 per cent of Canadian lenders use it, including major banks.

But Canadian consumers cannot access their FICO score on their own.

To find out his FICO score, Agarwal had to agree to what’s known as a “hard” credit check. That’s where a business runs a credit check as though a customer is applying for a loan.

Lenders are contractually obligated not to share a copy of the report FICO provides with the customer. They can only discuss the information and provide insight.

A hard check comes with risk. Unlike the “soft” check Agarwal agreed to from the four websites, a hard check could negatively impact his credit score.

As Credit Karma’s website explains, “Multiple hard inquiries in a short period could lead lenders and credit card issuers to consider you a higher-risk customer, as it suggests you may be short on cash or getting ready to rack up a lot of debt.”

Mortgage broker Vince Gaetano offered to do a hard credit check for Agarwal, as if he was applying for a loan, so he could learn his FICO score.

Agarwal took him up on the offer and was stunned to learn his FICO score was 829 — nearly 200 points higher than the lowest score he received online.

Raman Agarwal of Ottawa was shocked to learn the disparity between his FICO score and the four other credit scores he received online. (CBC )

 

“Oh my god!” Agarwal said when he heard the news. “I am really happy, but totally surprised.”

Doug Hoyes, co-founder of Hoyes, Michalos and Associates Inc., one of the largest personal insolvency firms in Canada, was also surprised by the disparity between Agarwal’s FICO score and the other scores he’d received.

“How can you be poor somewhere and fantastic somewhere else?”

Marketplace asked all four credit score companies why Agarwal’s FICO score was so different from the ones provided on their sites.

No one could provide a detailed answer. Equifax and TransUnion did say their scores are used by lenders, but they wouldn’t name any, citing proprietary reasons.

Credit Karma declined to comment. However, on its customer service website, it says the credit score it provides to consumers is a “widely used scoring model by lenders.”

‘A complicated system’

The free services, Borrowell and Credit Karma, make money by arranging loan and credit card offers for customers who visit their sites. Borrowell told Marketplace the credit score it provides is used by the company itself to offer loans directly from Borrowell. The company could not confirm whether any of its lending partners also use the score.

“So there are many different types of credit scores in Canada … and they’re calculated very differently,” said Andrew Graham, CEO of Borrowell. “It’s a complicated system, and we’re the first to say that it’s frustrating for consumers. We’re trying to help add transparency to it and help consumers navigate it.”

From Agarwal’s perspective, the credit companies are simply using the scoring system as a marketing tool.

“There should be one score,” he said. “If they are running an algorithm, there should be one score, no matter what you do, how you do it, should not change that score.”

The FICO score is also the most popular score in the U.S. Unlike in Canada, Americans can access their score easily by purchasing it on FICO’s website, or through FICO’s Open Access Program, without any risk of it impacting their credit rating.

 

FICO told Marketplace it would like to bring the Open Access Program to Canada, but it’s up to Canadian lenders.

“We are open to working with any lender and their credit bureau partner of choice to enable FICO Score access to the lender’s customers,” FICO said in an email.

Hoyes, the insolvency expert, suggests instead of focusing on your credit score, a better approach to monitoring your financial status would be to shift attention to your credit report and ensuring its accuracy.

All four websites Marketplace looked at provide credit reports to consumers.

A credit report is the file that describes your financial situation. It lists bank accounts, credit cards, inquiries from lenders who have requested your report, bankruptcies, student loans, mortgages, whether you pay your credit card bill on time, and other debt.

Although the mathematical formulas used to calculate different credit scores are unknown, credit score companies say these are some of the factors that could influence your number. (David Abrahams/CBC)

 

Hoyes said consumers are trying too hard to have the perfect credit score. The fact is, some activities that could boost a credit score, such as getting a new credit card or taking on a loan, aren’t necessarily the best financial decisions.

“My advice is to focus on what is better for your financial health, not what is best for the lender’s financial health.”

He said paying off debt and increasing savings is a better idea than focusing solely on the factors that can increase your credit score.

You focusing on this one metric, that isn’t the same thing the lender is using anyways, is really pointless, and I think it leads to bad decisions.– Doug Hoyes, Hoyes, Michalos and Associates Inc.

He points to billionaire investor Warren Buffett, the third richest person in the world, as an example.

“Would you rather lend to Warren Buffett, who’s got … cash in the bank but has a lousy credit score because he’s never borrowed and hasn’t built up any history, or some guy who has five credit cards and he constantly … moves the balance from one to the other and keeps his utilization under 20 per cent?”

The real estate, mortgage and auto lenders Marketplace spoke with said they look at more than just your credit score before making a lending decision. They also consider things like your income, your history with their company, the size of a downpayment, and other factors not reflected in your score.

For Hoyes, those factors are much more important than a three-digit number.

“You focusing on this one metric, that isn’t the same thing the lender is using anyways, is really pointless, and I think it leads to bad decisions.”

 

The good news, according to Borrowell CEO Andrew Graham, is that if you’re doing things like paying your bills on time and not maxing out your credit cards, you will see improvement in whatever credit score you track.

“I think that’s the power here.”

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