Credit Scores

Credit Reports and Scores 101There comes a time in your life when you may need to get a credit report – especially when you are ready to purchase a home. Credit reports can seem intimidating, especially when you don’t know exactly what to expect. To keep you ahead of the game, here we break down everything you need to know about credit reports and scores.

What is a credit report?

A credit report basically outlines the past six years of your financial history. It includes information about every loan you’ve taken out, your payment history, your credit limit on each account, a list of all authorized credit grantors, and more.

Who creates the report?

In Ontario, Equifax Canada and TransUnion Canada create the credit reports. These consumer reporting agencies collect the information from the bank, credit card companies, mortgage lenders, and creditors.

Who can request a report?

Lenders, creditors, insurance companies, potential employers, and landlords have the ability to request a copy of your credit report. However, law states that the consumer reporting agency must obtain your consent before they pass on a copy.

How to obtain a credit check?

You can obtain a free credit check whenever you wish. It is recommended to check your credit at least once a year to ensure everything looks accurate. To obtain a copy you can contact Equifax Canada or TransUnion Canada. Just be aware that if the information looks inaccurate you should report it to ensure that you have not been a victim of identity theft. To correct the information, ensure you have all the relevant proof necessary. You can also ask the consumer agency to notify anyone who has received a copy in the past six months to one year of the error.

How to obtain good credit?

To obtain good credit, pay your debts on time and avoid going over your credit limit. If you have had poor credit, stay focused at improving your payment habits and pay off high-interest loans first. Keep your credit healthy and your score will reflect it.

How to avoid identity theft?

You can ask a consumer agency to put an alert on your file for a fee. It will warn a person to verify the identity of anyone who claims to be you. Plus, they must give the alert to anyone else who receives information from your file and must take the appropriate steps to verify that they are actually dealing with you.  Also, be wary of companies offering to fix bad credit – fees paid for this type of service can be illegal. Check beforehand to ensure the institution is offering a legit service.

What if I have bad credit?

If you have bad credit, you may be rejected by the banks. VERICO The Financial Forum Ltd. has a range of options to assist and get you approval. With 20% down or at least 20% equity, we can obtain a mortgage for almost any credit situation. Debt consolidation is also a great way to manage your cash flow and save money.

Don’t let poor credit affect your future investments. Understand how the credit rating system works and keep paying your monthly payments on time. Keeping a good credit score is important for your future.

www.thefinancialforum.ca

Have questions? Contact us!

Who does not fear risk? We all do, and lenders are no different. While risk is an inherent part of business, a lender will choose risk wisely and prudently, especially when they have a choice to lend on multiple applications.

Understandably, many mortgage companies are reluctant to finance people with bad credit history or with little or low down payment. This is where a mortgage broker experienced with bad credit mortgages comes in. A bad credit mortgage can assist people who have bad credit score, low income, or a long history of loan rejections.

Mortgage Miracle Worker?

Not really. A mortgage broker should provide sound advice and options to you to assist you while things are not so favorable and help you to create an “exit plan” so that you can move back to conventional lending in the shortest period possible. Entering into a bad credit mortgage with no exit plan in place is never a good idea.

A mortgage broker experienced with bad credit mortgages can help you get your loan approved by mitigating circumstances and negotiating terms and conditions that make the loan viable to both you and the lender. Make no mistake, however. While a bad credit mortgage can seem like a miracle, it comes at a price. You will have to expend more money to get a bad credit mortgage. Ultimately, the loan you will qualify for will have a higher interest rate and closing fees.

When contemplating a mortgage when you are in this situation, you must evaluate your own risk reward, or more accurately, extra costs vs. potential rate of return. Will you be better or worse off?

You must also have or create an “exit plan” before you engage. By that I mean, you must set a goal to either be able to pay this loan off within a certain period or work on your credit issues, income issues, etc. so that you can qualify for a regular mortgage in the shortest period possible.

Is Your Broker Trying to Break You?

Do higher interest rates and closing fees mean your bad credit mortgage broker is pulling a fast one on you? Not at all, providing they are helping you solve the existing problem and are helping you with the short and long term picture. Mortgage brokers essentially provide a liaison between lenders and borrowers. The cost of money in this situation is higher. Mortgage brokers do not necessarily get paid more for a bad credit mortgage. The cost of money is simply higher and lenders usually charge a lending fee for these types of mortgages. However, mortgage brokers may have to charge you a fee for these types of mortgages whereas with conventional, qualified mortgages, they may not as they would receive compensation directly from the lender.

This is standard practice in the industry. You have to remember that your bad credit history makes you a greater risk than most. The only reason mortgage companies would willingly take on the kind of risk you represent is if it proves profitable for them in the end.

The Pain of Penalties

Some bad credit mortgage loans carry a pre-payment penalty. Therefore, again it is important to establish your exit plan and set your term accordingly. There is no sense paying a higher rate for 5 years when you can improve the situation in 1 or 2 years just because the present rate may be lower for a longer term. Again, this is an unavoidable pain in the neck for people with bad credit. Always opt for the loan with the shortest term that is closest to your reasonable exit plan. This way, you can pay off the loan quickly without penalty.

Don’t Worry, Just Wait

What if the rates prove too high for you? You have another option. Wait. It’s been said the best things in life are worth waiting for, and this mantra holds true for getting a mortgage even with bad credit. Wait a while before you contact a bad credit mortgage broker. Use the time on your hands to improve your credit score. When you’ve successfully done this, you can then qualify for a loan with a lower interest rate.

We can provide some free advice on how to improve your credit score. Just ask us!

Risk is terrifying, but it’s unavoidable. In applying for a mortgage, a bad credit mortgage broker can give you a makeover – from being a walking liability to a sound investment.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

 

 

 

Credit rating always seems to be a mystery to many clients. Let’s breakdown the process and make it a little easier to understand.

Payment Record – Your payment record and history is obviously one of the most important factors in determining your credit score. Approximately 35 percent of your credit score is attributed to this category. Paying all of your accounts such as loans, credit cards, lines of credit, retail department store accounts; car loans, student loans, mortgages, etc. on a timely basis is crucial to a good credit score.

All public records and collection items such as bankruptcies, foreclosures, liens, judgments, and delinquencies reported to collection agencies are taken into consideration. Your credit report will include details on all late or missed payments, public record items, and collection items.

Simply, try to make all your payments on time, even if it’s just the minimum payment. If you have trouble remembering, enroll in an auto payment plan. You can arrange for them to take at least the minimum payment and always pay extra when available.

Balances on Accounts – Approximately 30 percent of your credit score is based on this category. As this category is heavily weighted, focus should be placed on it accordingly.

A good rule of thumb to follow: On any revolving credit, limit your spending to 50 percent of the limit or below. In other words, never spend more than 50 percent of the limit on the account.

Length of credit history – Approximately 7% of your credit rating is based on this category. How long your credit accounts have been established with each creditor is considered. Also, how long it has been since there was activity on each accounts and whether the account appears active or dormant.

How long it has been since a late payment, judgment, public record or other derogatory item has been reported on your credit file.

If you do have any derogatory items being reported on your bureau, there is not much you can do about eliminating them. However, ensure you pay off or settle any outstanding balances so they appear as paid and not outstanding. Once you have done so, work on re-establishing credit on current accounts and keeping your payments on time and balances below 50% of the limit. It is possible to have a good score even if you have derogatory items being reported. Simply, work on your present payment history and keeping your balances in check.

New Credit and Inquiries – Do you have a lot of new accounts, a lot of new inquiries? This may affect your credit score so be cautious.

If you are shopping for something, i.e. a mortgage, auto, multiple inquiries should not affect your credit score. Typically, these are treated as a single inquiry and will have little impact on the credit score.

If you apply for several different credit cards, lines of credit, etc. within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk and may affect your score.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

 

Unless you are under the age of 18, then your credit rating is an integral part of who you are and a major factor in some of the biggest decisions you will make in your life. Now, in a perfect world everyone would make every payment, never rack up and debt and all have scores 800+. But this is the real world and the reality is things happen that can hurt your score. In fact, a huge share of the mortgage lending market is based around clients with less than perfect credit. Fortunately for those with a below average score, or even those with a strong score who want to improve or make sure they maintain it, there are a few key items credit bureaus like Equifax and Transunion focus on and we’re going to outline the top 5 to help you improve your credit score – or keep it strong!

Credit Scores

  1. Have more than one credit account open. This does not mean get credit happy and sign up for every card under the sun. Credit bureaus look at active credit available and if you are managing 2 or 3 different credit cards/Lines of Credit/Vehicle Loans properly this will help strengthen your credit rating.

  2. Use your accounts on a regular basis. Companies like Master Card and Visa report to the Credit bureaus once per month typically. One of the items on your report is Date Last Active, or when you last used your card. If you opened the account and never used it, then it does not get reported and does not really help you out. Even if you use once a month for a tank of gas and pay it off, it will still be reported and therefore strengthen your rating.

  3. Keep your balances below 50% of the limit at MAX. Obviously it is ideal to pay off your balances in full every month, but sometimes this just isn’t the case. Maybe an unexpected expense came up and you needed to use your credit, maybe you had some credit issues in the past and you’re working on repairing your rating. Whatever the case is, it is extremely beneficial to your score to have your balances below 50% of the available limit. Part of the algorithm the bureaus use to determine your score is amount of credit used versus amount of credit available. Keeping this below 50% will most definitely improve your beacon.

  4. Avoid too many credit inquiries. Pulling multiple credit reports can hurt your score, but contrary to popular belief not all inquiries shave points off. If you for example are shopping for a vehicle, find one you like, apply for financing and that’s the end of it; this does not hurt you. If you go around to 5 or 6 different dealerships and do a credit inquiry at each one for the same purpose in a short time span, this will hurt your score. Avoid doing credit checks before you have a good idea of what it is that you need. Additionally, there are two types of credit inquiries: A soft hit and a hard hit. A soft hit is when you go on to Equifax and do an inquiry on yourself. This does not show up as an inquiry on your bureau. When a bank or other company performs a check on you for a reason, this will show up. This is also an advantage of using a mortgage broker over a bank. Brokers will run ONE credit check and use that for any lenders they may submit your deal to.

  5. Improve Your Credit Score

  6. DO NOT MISS PAYMENTS. Fairly self-explanatory statement and probably the most obvious thing you have read today. Missing payments is a no-no. Although it is not the end of the world, a missed payment not only hurts your score but generally, they will continue to show on your report for the next 7 years. Put a reminder in your phone, tape it to your forehead, whatever it takes. Make your payments on time.

Have any other tips that we missed? Don’t agree with any of the above? Let us know in the comments. To learn more about how your score can affect your options with your mortgage if you are planning to purchase or re-finance, call us at 905-265-0246 or email mortgages@thefinancialforum.ca

Have an idea for an article or something you would like to see posted? Post it in the comments below or on Facebook and we will do our best to produce it for you. Or sign up for our email reports to stay up to date with market news and special rate promotions.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (877) 335-4486.

Best Home Loans & Financing - The Financial Forum

 

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

Trying to buy or refinance your own home but can’t get a mortgage because of your bad credit rating? There is a market and product available for you, sometimes referred to as “B” lending and in certain cases, private lending

Traditional mortgage providers rarely offer their mortgage products to people with bad credit. Why? Because if you’ve had trouble paying your bills, credit cards or loans in the past, you’re a bad risk.

The recent increase in the number of people in this situation, however, has meant that demand has risen for suitable mortgage products. The larger lenders are still wary of bad credit risks, so it has fallen to more specialist lenders to fill the gap in the market. Consequently, the bad credit mortgage market is growing, and is competitive, which means that customers suffering from poor credit can find a range of mortgage products that suit their needs and that help them get their finances back on track.

So, what is a bad credit mortgage?

A bad credit mortgage is a financial product that’s specifically designed to let you buy your own home even if you have a bad credit rating.

  • Interest rates on these mortgages are typically marginally higher than for traditional mortgages. This is because the risk to the lender is higher.
  • There may be some additional conditions on your mortgage, which are placed there to give security to the lender. These might include a larger arrangement fee at the start of the mortgage, or stricter redemption penalties.
  • A bad credit mortgage can help you to address your financial difficulties and even to improve your credit rating over the long term.

With bad credit, there is some leniency with respect to income and other qualifying factors as well.

However, with bad credit mortgages, lenders are also more strict on down payment or equity, where you should have at least 15 percent available. They are also stricter on property types and locations.

Do we know this market? Having assisted thousands of clients in Ontario over the last 28 years, we sure do. We provide an analysis of the costs associated with arranging a bad credit mortgage. We weigh the costs against opportunity and against forecasted length of time before the client can execute their exit plan to move back into “A” lending. We even provide a plan and guidance to improve credit so the exit plan can be executed as quickly as possible. In fact, most of our clients are out of B lending in 12 to 24 months.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

Credit rating always seems to be a mystery to many clients. Let’s breakdown the process and make it a little easier to understand.

Payment Record – Your payment record and history is obviously one of the most important factors in determining your credit score. Approximately 35 percent of your credit score is attributed to this category. Paying all of your accounts such as loans, credit cards, lines of credit, retail department store accounts; car loans, student loans, mortgages, etc. on a timely basis is crucial to a good credit score.

All public records and collection items such as bankruptcies, foreclosures, liens, judgments, and delinquencies reported to collection agencies are taken into consideration. Your credit report will include details on all late or missed payments, public record items, and collection items.

Simply, try to make all your payments on time, even if it’s just the minimum payment. If you have trouble remembering, enroll in an auto payment plan. You can arrange for them to take at least the minimum payment and always pay extra when available.

Balances on Accounts – Approximately 30 percent of your credit score is based on this category. As this category is heavily weighted, focus should be placed on it accordingly.

A good rule of thumb to follow: On any revolving credit, limit your spending to 50 percent of the limit or below. In other words, never spend more than 50 percent of the limit on the account.

Length of credit history – Approximately 7% of your credit rating is based on this category. How long your credit accounts have been established with each creditor is considered. Also, how long it has been since there was activity on each accounts and whether the account appears active or dormant.

How long it has been since a late payment, judgment, public record or other derogatory item has been reported on your credit file.

If you do have any derogatory items being reported on your bureau, there is not much you can do about eliminating them. However, ensure you pay off or settle any outstanding balances so they appear as paid and not outstanding. Once you have done so, work on re-establishing credit on current accounts and keeping your payments on time and balances below 50% of the limit. It is possible to have a good score even if you have derogatory items being reported. Simply, work on your present payment history and keeping your balances in check.

New Credit and Inquiries – Do you have a lot of new accounts, a lot of new inquiries? This may affect your credit score so be cautious.

If you are shopping for something, i.e. a mortgage, auto, multiple inquiries should not affect your credit score. Typically, these are treated as a single inquiry and will have little impact on the credit score.

If you apply for several different credit cards, lines of credit, etc. within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk and may affect your score.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

CREDIT SCORES

Bad or poor credit can cost you hundreds, thousands of extra dollars in interest for any type of financing you may require and may even prevent you from getting financing at all.  This is why, in addition to being timely with your creditor payments, it is also important to confirm the accuracy of your credit reports on a regular basis.  This will provide you with the data contained in your credit report as well as your credit score which is used by lenders to determine how likely you are to repay a loan.

The lower your credit score, the higher risk you are to a lender and the less likely you are to get the best rates on loans.  Checking your score with Equifax or Transunion before you apply for a loan can save you money if you catch a mistake or see something that you may be able to correct to improve your score. When you are buying a home, the difference between good scores and poor credit scores can translate into thousands of dollars in interest costs over the life of your mortgage.

Several factors are used to calculate your score, including bankruptcies, how many years you have established credit, how many inquiries, amount of outstanding debt, how timely your payments have been, etc..  The way lenders view scores varies from one institution to another.  However, below is a guide to demonstrate how your score may be perceived by a mortgage lender:

700 and above – EXCELLENT – you will get the best rates provided other information on your application falls in line such as income, down payment, equity, etc.

680-699 – GOOD – lenders will be favorable, and you should still be able to qualify for best rates.

620-679 – AVERAGE – lenders will still consider your application and possibly at best rates. However, they will perform extra due diligence and you may be faced with a higher rate.

580-619 – SUBPRIME – You may be ineligible for any “A” type lending and be faced with higher rates and fees to arrange your mortgage. You should be looking at ways to correct issues and increase your score.

BELOW 580 – Is considered poor. At this level, you would be faced with B lending, possibly private lending or be turned down all together. You should be creating a plan to rectify past issues and then proceed with a credit improvement plan.

There are many ways to improve credit. You can take steps to improve any credit score.  The first step is to make sure that your credit history is accurate.  Your scores are only as good as the information reported by your creditors to the credit bureaus.  The second step is to use the information on your credit history to improve your scores.  You may find the biggest reason your scores are low is that the outstanding balances on your credit cards are too high compared to the total credit limits.  Any credit score will improve if you pay off balances and pay on time. You may have missed some payments and have to get back on track. You may have too many inquiries on your report. You should investigate all factors and determine the best plan of action to improve your score.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

With new rules and regulations that have been introduced, qualifying for a mortgage can be a challenge.

We don’t like to turn many down, and in fact we don’t. We may not be able to assist right away if you don’t qualify, but rest assured, we will coach you and assist you so that obtaining the mortgage and home of your dream can become a reality.

However, when a client does get turned down, the typical reasons involve multiple factors such as poor credit scores, inadequate documented income and little or no savings for a down payment.

What may be surprising to most is which of the above factors is most often the cause of a turn down. It’s not credit scores and not even down payment. It’s your Lending Ratios – GDS – Gross Debt Service Ratio and TDS – Total Debt Service Ratio. This is the number one concern factor that is viewed when underwriting your mortgage application.

In spite of this, most borrowers only have a vague idea of what their own debt service ratios are or what they should look like. More importantly, how lenders view them and what their limits will be.

Debt service ratios for mortgages are the most crucial indicators about whether you are going to be able to afford to repay the mortgage loan.

In essence, debt service ratios for mortgages have two components: The first measures your gross income from all sources before taxes against your proposed monthly housing expenses including the principal, interest, taxes and heating/utilities on the proposed mortgage.

As a general rule, lenders like to see your housing expense ratio no higher than 35 percent of gross monthly income, though there is flexibility to go higher if other elements of your application are strong.

The second debt service ratio component, is referred to as Total Debt Service Ratio. It measures your income against all your recurring monthly debts. These include housing expenses as defined above, credit cards, student loans, personal loan payments and others. Most lenders like to see this figure at 42 percent or below. Again, there is some flexibility here depending on other elements of your application.

Bottom line: Make attempts to stay within your affordability guidelines and try to keep revolving, recurring debt levels to a minimum.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!