Good Credit Advice

Average debt balance for Canadians in 2015 was $21,058.

I have reviewed a lot of credit bureaus and I learned early on in this business that most people have an inadequate understanding of how credit reporting works.

Most go about their life almost never thinking about their personal credit profile until they want to apply for some type of credit or loan. The thing is, some forms of credit of very easy to qualify for like secured or low limit credit cards or auto loans  which are weirdly easy to qualify for considering some vehicle payments can be as much a a mortgage payment! So these types of credit don't really require much for preliminary advice or planning. Other types of credit are more difficult to qualify for, like unsecured loans, lines of credit and mortgages and these require a much more strict understanding of borrowing requirements.

So, to help you work toward a 800+ credit score which will allow you to qualify for a mortgage or any type of credit you want, here's some rules and advice to follow...

Rule #1
Don't Miss Any Payments. This may seem like a no brainer but, it’s easy to dismiss certain bills as being less important (like a phone bill). No matter how small the minimum payments are or who you’re making them to, always make them on time. In the worst case scenario, you can still make the minimum payment within 30 days and avoid a permanent scar on your credit bureau but, it will still temporarily reduce your score. If you’re struggling to make your payments on time, you need to consider debt consolidation options and if need be, seek credit counseling.

Rule #2
Pay Down Your Balances. You may think that simply paying the minimum payments on time every month on your credit card or line of credit is enough to maintain a good credit score but if your balances are too close to the limit and take too long to get paid off or worse, if you exceed your limit, this will negatively impact your credit score.

Rule #3
Prove That You're Good For It. A mortgage is basically the most serious kind of credit to apply for and you have to have a credit profile that proves you're up to the task. Think of your credit bureau like a job resume. You're not going to acquire the position of CEO without any worthwhile employment history. You have to start somewhere near the bottom then build your experience and credentials first.

Generally, most people start with a low balance, secured credit card from their bank or credit union. Mobile phone contracts report regularly to your credit bureau as well. Paying debts like these on time for 6 months to 1 year should grant you access to other forms of borrowing such a personal auto loan or credit card. Keep in mind you can also gain access to financing with the aid of a qualified co-signer.

The credit history needed to qualify on your own for a mortgage with less than 20% down is generally at least 2 sources of major credit (credit card, personal loan, line of credit) reporting on your credit bureau for at least 2 years. The sooner you do this, the sooner you'll get pre-approved!

There are exceptions to this rule though... You may get approved without an adequate 2 year credit history if A. You're new to Canada or B. You're able to provide some form of alternative credit. I'll get into more details on this in another blog (feel free to contact me directly if you have more questions - go to www.ianleverington.ca/contactus).

Rule #4
Maintain A Stable Credit History. Avoid making frequent applications for credit and try not to shuffle your account or debts too frequently. Lenders will view these types of activities as a sign of financial distress or possibly even fraudulent activity.  Also, auto dealerships like pushing you to make fill out an application every time you walk into the showroom and some might share your application with more than one bank which can turn into a lot of credit checks over a even just a few days or weeks of car shopping. Just remember, despite what they tell you, you don't need to apply for financing until you've found the vehicle you actually want to purchase. If you want to be even smarter, check your credit on your own and you can share your score with them if you'd like.

Rule #5 (Speaking of checking your own credit report...) 
Keep Track Of Your Own Credit... The only person that knows what’s really going on with your credit is you. You should request and review a copy of your personal credit bureau at least once a year to make sure everything is as it should be. Everyone should do this once every couple years.

It’s possible for creditors or financial institution and even big banks to fail at properly updating your credit bureau accounts. Some people have been surprised with collections showing up on their bureau from debts that they thought were dealt with. There’s also the issue of identity theft. Don’t assume you’ll never become a victim and being left with a ruined credit score is just one of the many negative side effects of identity theft. This should give you incentive you want to keep tabs on your accounts and credit bureau all the more often.

Anyone can access a free credit report from Equifax or Transunion. They even offer inexpensive subscription services to receive updates on things like credit score changes or if your credit bureau has been requested and it would also give you 24/7, year round access to your credit report.

You can learn how to get a free credit report from Equifax or TransUnion by visiting the Office of Consumer Affairs (OCA) website here.

Past Trouble With Your Credit History?

Let's face it, life happens. Don't stress. Past troubles won't haunt you forever but, you need to prove you've learned your lesson. If this is you, simply follow the advice in this article and you'll be okay but, you need to be extra disciplined. Repeat credit issues over a number of years are likely to continue causing you problems and preventing you from qualifying for the mortgage you want.

If you're currently dealing with debt repayment issues, take a breather and consider all of your options starting with debt consolidation using your home equity to refinance. If that’s not an option, an unsecured line of credit might be. In the worst case scenario, a credit counseling company will be able to give you more options such as a consumer proposal or filing for bankruptcy.  Filing for bankruptcy or a consumer proposal can have the most negative effects on your credit report and it can take 6 or 7 years for these to come off your record but, it’s better than a life time of financial hardship. If you don’t think you have any other options, don’t sit around. Seek help!

I would recommend the Credit Counseling Society of Canada. They’re a non-profit organization and they have contacts in all the major cities across Canada. Here’s their website - www.nomoredebts.org

Looking for suggestions on where to get a credit card or small loan outside of your local bank or credit union? I would suggest contacting Easy Financial,  MBNA ,  Affirm Financial, or maybe Capital One.

If you'd like to stay up to date on all things mortgage and real estate, follow this blog or check us out on Facebook, Twitter, Google+ or visit my website www.ianleverington.ca