Credit

Credit Bureaus

Credit Bureaus track your personal credit history in a customer record. The customer record can then be used to generate a credit score. It is to your advantage to have a higher score because there is greater chance of being qualified for additional credit or the loan that you need. It is important to note that when lenders consider a loan or credit application, additional information is usually required for making credit decisions. A creditor will usually ask for information like your monthly income, employment history, and your current outstanding debts to make an assessment as to whether or not you are capable of repaying your loan.

No credit-reporting agency will recommend whether or not to give you a home loan. It is up to the mortgage lender to evaluate your credit report and then decide whether or not to offer you credit. The two leading credit reporting agencies in Canada are: Equifax and Trans Union.

Credit Risk Scores

A credit risk score is a statistical summary of the information contained in an individual's credit report.

The most common type of credit risk score in Canada is known as a Beacon score. Sophisticated mathematical processes calculate the score by assigning numerical values to various pieces of information in your credit report. The score itself is relative. Some lenders will consider a particular score acceptable, and others will not. Lenders will view scores differently, depending on many factors, including the marketing goals and mortgage underwriting guidelines for that lender.

If you have a high credit score, lenders should be able to conclude that you are capable of repaying your debts. This would then enable lenders to provide you with better interest rates and loan offers. Credit cards may be harder to obtain because lenders still see room for improvement. To improve your credit score, continue to pay your debts on time. Lender offers will differ based on information you provide concerning your monthly income, employment history, and monthly debt. This information will aid in the determination of whether you receive an excellent offer, or just a respectful offer.

Explanation

There are several factors taken into account that help determine your credit score. The factors making the largest impact are listed below. Remember that these factors vary in how strongly they impact your credit score. For example, if you have a very high credit score, the negative factors in your analysis are likely to have a small impact. For very low credit scores, the opposite is true in that negative factors have a very large impact on your credit.

Here are the top factors that make your score lower:

Average balance of retail accounts is too high.

High credit balances for revolving accounts (credit cards) and some installment accounts (i.e. auto loans) are considered by lenders to be a negative factor when determining credit worthiness. This is because high credit balances suggest a sense of living outside your means, which is a high risk for creditors if they are trying to gain repayment. In addition, never using your credit cards is also considered a negative factor because it does not provide lenders with enough information about your creditworthiness. Lenders evaluate how much you owe other creditors in relation to your income. To contrast, low balances for revolving accounts (credit cards) and some installment accounts (auto loans) are considered by lenders to be a positive factor. This is because lenders are at less of a risk if you become unable to repay them. The best deals from creditors are always given to people who display a high level of financial responsibility.

Length of time finance accounts have been established is too short.

Open credit accounts over a long period of time are considered a positive factor by lenders because a sufficient credit history can be evaluated as to how you handle your financial responsibility. An optimal credit report will contain about 30 years of credit history. Credit reports that are too short generally present up to 7 years of credit history. Credit reports with less than 3 years of history are considered not adequate. To allow yourself an ability to get the best deal from a lender, check your credit report against your credit history to insure your active accounts are accurate with your credit history. The item that matters most is how long your accounts have been in your report.

Too many inquiries.

An "inquiry" is noted on your credit report whenever you apply for new credit. The lender considering your application checks your credit history, which generates an inquiry. Although inquiries are considered common when applying for credit, lenders do not like to see many inquiries within a short period of time. This is because lenders do not understand if you are searching for the best deal or if you have become financially unstable. It is important to limit your credit search to a small number of lenders when searching for the best offer.

Your Credit Bureau report is not an endorsement or a determination of your qualification for a loan. Lenders use credit scores to help determine whether or not you are a good candidate for a loan and what interest rate you will pay. However, each lender has specific underwriting standards, so you should not assume that you will receive the same evaluation from each lender. As part of the underwriting process, they will incorporate additional information you provide and may obtain references. In addition, even if you are approved, the terms and conditions of loans vary from lender to lender. The information used to determine your credit score comes from one of the major credit bureaus (Equifax or TransUnion). Credit reports are a compilation of credit information that is reported to the bureaus by the various lending institutions with which you have accounts. The information contained in your report reflects the latest information provided. If you recently made a payment, opened a new account, or authorized an inquiry, it may not yet be reflected in the credit report you receive. Likewise, it will not be reflected in your credit score. Also, disputed items are not incorporated in the assessment of your credit score. Your credit score will change each time new information is captured in your record.

Not all lenders will work with 'higher risk' clients.
There is good news though. Your risk score will change over time as your credit history develops. And you can affect that score by improving your performance with credit. Paying regularly and on time is an excellent start.
Note that credit scores range from 300 - 900. The higher the score the better the credit rating. Usually any credit score under 620 is considered bad credit. What that means is that you may not qualify for a 'conforming' mortgage. But that doesn't mean that you won't qualify for a mortgage at all. Other lenders may be willing to consider your business.
Your goal should always be to continuously work towards obtaining a higher credit score. However, this can take time.
Accuracy of Your Credit Report
What exactly is in your credit report? It generally contains four types of information:

1. Identifying information:

Your name
Your current and previous addresses
Your Social Security number
Your year of birth
Your current and previous employers
If you're married, your spouse's name

2. Good and bad credit information, which includes credit accounts or loans you have with:
Banks
Retailers
Credit card issuers
Mortgage lenders
Other lenders

3. Public record information such as any information that's contained in court records, like:
Bankruptcies
Tax liens
Monetary judgments

4. Your credit report will also show that you have applied for new credit that could result in additional debt. This is why you should limit the number of credit inquiries made on you. A lender will view multiple recent inquiries as a sign that you are overextending yourself.

Once you get your report, read it carefully! If there are any problems or inaccuracies, contact the credit bureau right away. Do this in writing. Also, if the same problem is reported by more than one credit bureau you need to contact each one.
If a bad credit incident is reported inaccurately get it removed. This is very important.
To dispute inaccurate information on your Trans Union or Equifax credit report write to the bureau that supplied the information. In your letter be sure to include:
• Your full name, first, middle and last and include any applicable suffixes (Jr., Sr., II, etc.)
• Your complete mailing address
• Your date of birth
• Your Social Insurance number (this is necessary to access your credit report)
• The name and account number of the creditor and item in question
• The specific reason for your disagreement with the disputed item
• Request an updated credit report
• Your signature

Improving Your Credit Score

Once you feel all the information obtained within your credit report is accurate there are several things you can do to improve your credit report and credit scores.

If you have a low credit score, only because you haven't had any credit, apply for credit with a local business; such as a department store or a local bank or credit union. These local merchants may have lower credit standards than larger lenders. Then, make use of that credit being sure to pay promptly. You can avoid any interest charges when using credit cards by paying before the due date on your bill.
If you are having difficulty opening a credit account of any kind, consider asking a friend or family member to co-sign your loan or credit card application. You may also be able to get a secured card, which you guarantee by a deposit you make with the card issuer.

Always pay your bills on time. This is one of the best ways to get credit and improve credit. Lenders see a history of on-time payments as indicator of good credit risk.
But that doesn't mean your credit history must be perfect for you to qualify for a mortgage home loan. Bad credit because of late payments can be changed over time. Your best bet is to pay all bills on time.
Let's say that you misplace a bill this month and you realize your payment will be late. You decide to wait until next month and just pay both months at once. Don't!

You do not want any payments to arrive over 30 days past the due date as this will be reported to the credit bureaus. Also, the later the payment arrives the more damage can be done. Most companies will also report late payments as 60, 90 and 120 days late. So, if you happen to miss a payment make sure to send it in right away.
Another factor any mortgage lender must assess before offering you a mortgage approval is your total debt. If a large portion of your income each month is already committed to paying off other debt you'll have a hard time getting that mortgage. The amount of your monthly debt payments compared to your income is referred to as your debt to income ratio.

If you have bad credit due to too much debt, one option is consolidate your other debt as part of your mortgage. In effect, you will get enough cash to pay off the other debt as well as pay for your home.
Oftentimes, you can drastically lower your monthly payments in this way. It also leaves you with just one monthly debt payment rather than several. With one payment, it's easier to track and be sure that payment is on time. It's one way to increase your credit rating and credit scores, while also making your financial situation easier.

Credit Inquiries

Whenever you authorize a mortgage lender, creditor, employer or other business to check your credit report an "inquiry" is added to your report. An inquiry notes that someone has checked your credit.
While an inquiry by someone else will be noted; checking your own credit report is not. A lender will look at the number of inquiries and when they took place. A large number of inquiries occurring in a short period may be interpreted as a sign that you are either:
• Applying for lots of credit because of financial difficulty, or Overextending yourself by taking on more debt than you can actually repay.

Therefore, it's always a good idea to minimize inquiries into your credit report. If you're shopping around for mortgage lenders who do bad credit mortgages, don't let every lender you consider run a credit check. Get a copy of your own credit report. This way you can provide the report directly to the lender, especially for quotes. Alternatively, you might have to settle for slightly more approximate estimates while you are shopping around, if the lender doesn't verify your credit history. However, be sure to explain to any lender what bad credit is on your report. That way, they can give you an accurate estimate. This is important. You'll need to know ahead of buying that property whether you can get a mortgage or not and from whom.

Applying with Bad Credit

Mortgage lenders will review your credit report. Keep in mind that each lender will also have their own underwriting guidelines they follow. Those guidelines will determine your eligibility.

Underwriting guidelines are the criteria under which you will be approved for a loan. Insurance companies use the same term, when they evaluate you for insurance. Underwriting guidelines assess the risk you pose to the company. In the case of a mortgage the lender is trying to decide what the chances are that you will default.

What does this mean for you? If you have bad credit, you need to find a lender that has easier underwriting guidelines. The challenge is that most lenders, who accept a greater degree of risk in their loans, also charge a higher interest rate. So, if your credit is bad you will pay more.



Credit Credit Bureaus Credit Bureaus track your personal credit history in a customer record. The customer record can then be used to generate a credit score. It is to your advantage to have a higher score because there is greater chance of being qualified for additional credit or the loan that you need. It is important to note that when lenders consider a loan or credit application, additional information is usually required for making credit decisions. A creditor will usually ask for information like your monthly income, employment history, and your current outstanding debts to make an assessment as to whether or not you are capable of repaying your loan. No credit-reporting agency will recommend whether or not to give you a home loan. It is up to the mortgage lender to evaluate your credit report and then decide whether or not to offer you credit. The two leading credit reporting agencies in Canada are: Equifax and Trans Union. Credit Risk Scores A credit risk score is a statistical summary of the information contained in an individual's credit report. The most common type of credit risk score in Canada is known as a Beacon score. Sophisticated mathematical processes calculate the score by assigning numerical values to various pieces of information in your credit report. The score itself is relative. Some lenders will consider a particular score acceptable, and others will not. Lenders will view scores differently, depending on many factors, including the marketing goals and mortgage underwriting guidelines for that lender. If you have a high credit score, lenders should be able to conclude that you are capable of repaying your debts. This would then enable lenders to provide you with better interest rates and loan offers. Credit cards may be harder to obtain because lenders still see room for improvement. To improve your credit score, continue to pay your debts on time. Lender offers will differ based on information you provide concerning your monthly income, employment history, and monthly debt. This information will aid in the determination of whether you receive an excellent offer, or just a respectful offer. Explanation There are several factors taken into account that help determine your credit score. The factors making the largest impact are listed below. Remember that these factors vary in how strongly they impact your credit score. For example, if you have a very high credit score, the negative factors in your analysis are likely to have a small impact. For very low credit scores, the opposite is true in that negative factors have a very large impact on your credit. Here are the top factors that make your score lower: Average balance of retail accounts is too high. High credit balances for revolving accounts (credit cards) and some installment accounts (i.e. auto loans) are considered by lenders to be a negative factor when determining credit worthiness. This is because high credit balances suggest a sense of living outside your means, which is a high risk for creditors if they are trying to gain repayment. In addition, never using your credit cards is also considered a negative factor because it does not provide lenders with enough information about your creditworthiness. Lenders evaluate how much you owe other creditors in relation to your income. To contrast, low balances for revolving accounts (credit cards) and some installment accounts (auto loans) are considered by lenders to be a positive factor. This is because lenders are at less of a risk if you become unable to repay them. The best deals from creditors are always given to people who display a high level of financial responsibility. Length of time finance accounts have been established is too short. Open credit accounts over a long period of time are considered a positive factor by lenders because a sufficient credit history can be evaluated as to how you handle your financial responsibility. An optimal credit report will contain about 30 years of credit history. Credit reports that are too short generally present up to 7 years of credit history. Credit reports with less than 3 years of history are considered not adequate. To allow yourself an ability to get the best deal from a lender, check your credit report against your credit history to insure your active accounts are accurate with your credit history. The item that matters most is how long your accounts have been in your report. Too many inquiries. An "inquiry" is noted on your credit report whenever you apply for new credit. The lender considering your application checks your credit history, which generates an inquiry. Although inquiries are considered common when applying for credit, lenders do not like to see many inquiries within a short period of time. This is because lenders do not understand if you are searching for the best deal or if you have become financially unstable. It is important to limit your credit search to a small number of lenders when searching for the best offer. Your Credit Bureau report is not an endorsement or a determination of your qualification for a loan. Lenders use credit scores to help determine whether or not you are a good candidate for a loan and what interest rate you will pay. However, each lender has specific underwriting standards, so you should not assume that you will receive the same evaluation from each lender. As part of the underwriting process, they will incorporate additional information you provide and may obtain references. In addition, even if you are approved, the terms and conditions of loans vary from lender to lender. The information used to determine your credit score comes from one of the major credit bureaus (Equifax or TransUnion). Credit reports are a compilation of credit information that is reported to the bureaus by the various lending institutions with which you have accounts. The information contained in your report reflects the latest information provided. If you recently made a payment, opened a new account, or authorized an inquiry, it may not yet be reflected in the credit report you receive. Likewise, it will not be reflected in your credit score. Also, disputed items are not incorporated in the assessment of your credit score. Your credit score will change each time new information is captured in your record. Not all lenders will work with 'higher risk' clients. There is good news though. Your risk score will change over time as your credit history develops. And you can affect that score by improving your performance with credit. Paying regularly and on time is an excellent start. Note that credit scores range from 300 - 900. The higher the score the better the credit rating. Usually any credit score under 620 is considered bad credit. What that means is that you may not qualify for a 'conforming' mortgage. But that doesn't mean that you won't qualify for a mortgage at all. Other lenders may be willing to consider your business. Your goal should always be to continuously work towards obtaining a higher credit score. However, this can take time. Accuracy of Your Credit Report What exactly is in your credit report? It generally contains four types of information: 1. Identifying information: Your name Your current and previous addresses Your Social Security number Your year of birth Your current and previous employers If you're married, your spouse's name 2. Good and bad credit information, which includes credit accounts or loans you have with: Banks Retailers Credit card issuers Mortgage lenders Other lenders 3. Public record information such as any information that's contained in court records, like: Bankruptcies Tax liens Monetary judgments 4. Your credit report will also show that you have applied for new credit that could result in additional debt. This is why you should limit the number of credit inquiries made on you. A lender will view multiple recent inquiries as a sign that you are overextending yourself. Once you get your report, read it carefully! If there are any problems or inaccuracies, contact the credit bureau right away. Do this in writing. Also, if the same problem is reported by more than one credit bureau you need to contact each one. If a bad credit incident is reported inaccurately get it removed. This is very important. To dispute inaccurate information on your Trans Union or Equifax credit report write to the bureau that supplied the information. In your letter be sure to include: • Your full name, first, middle and last and include any applicable suffixes (Jr., Sr., II, etc.) • Your complete mailing address • Your date of birth • Your Social Insurance number (this is necessary to access your credit report) • The name and account number of the creditor and item in question • The specific reason for your disagreement with the disputed item • Request an updated credit report • Your signature Improving Your Credit Score Once you feel all the information obtained within your credit report is accurate there are several things you can do to improve your credit report and credit scores. If you have a low credit score, only because you haven't had any credit, apply for credit with a local business; such as a department store or a local bank or credit union. These local merchants may have lower credit standards than larger lenders. Then, make use of that credit being sure to pay promptly. You can avoid any interest charges when using credit cards by paying before the due date on your bill. If you are having difficulty opening a credit account of any kind, consider asking a friend or family member to co-sign your loan or credit card application. You may also be able to get a secured card, which you guarantee by a deposit you make with the card issuer. Always pay your bills on time. This is one of the best ways to get credit and improve credit. Lenders see a history of on-time payments as indicator of good credit risk. But that doesn't mean your credit history must be perfect for you to qualify for a mortgage home loan. Bad credit because of late payments can be changed over time. Your best bet is to pay all bills on time. Let's say that you misplace a bill this month and you realize your payment will be late. You decide to wait until next month and just pay both months at once. Don't! You do not want any payments to arrive over 30 days past the due date as this will be reported to the credit bureaus. Also, the later the payment arrives the more damage can be done. Most companies will also report late payments as 60, 90 and 120 days late. So, if you happen to miss a payment make sure to send it in right away. Another factor any mortgage lender must assess before offering you a mortgage approval is your total debt. If a large portion of your income each month is already committed to paying off other debt you'll have a hard time getting that mortgage. The amount of your monthly debt payments compared to your income is referred to as your debt to income ratio. If you have bad credit due to too much debt, one option is consolidate your other debt as part of your mortgage. In effect, you will get enough cash to pay off the other debt as well as pay for your home. Oftentimes, you can drastically lower your monthly payments in this way. It also leaves you with just one monthly debt payment rather than several. With one payment, it's easier to track and be sure that payment is on time. It's one way to increase your credit rating and credit scores, while also making your financial situation easier. Credit Inquiries Whenever you authorize a mortgage lender, creditor, employer or other business to check your credit report an "inquiry" is added to your report. An inquiry notes that someone has checked your credit. While an inquiry by someone else will be noted; checking your own credit report is not. A lender will look at the number of inquiries and when they took place. A large number of inquiries occurring in a short period may be interpreted as a sign that you are either: • Applying for lots of credit because of financial difficulty, or Overextending yourself by taking on more debt than you can actually repay. Therefore, it's always a good idea to minimize inquiries into your credit report. If you're shopping around for mortgage lenders who do bad credit mortgages, don't let every lender you consider run a credit check. Get a copy of your own credit report. This way you can provide the report directly to the lender, especially for quotes. Alternatively, you might have to settle for slightly more approximate estimates while you are shopping around, if the lender doesn't verify your credit history. However, be sure to explain to any lender what bad credit is on your report. That way, they can give you an accurate estimate. This is important. You'll need to know ahead of buying that property whether you can get a mortgage or not and from whom. Applying with Bad Credit Mortgage lenders will review your credit report. Keep in mind that each lender will also have their own underwriting guidelines they follow. Those guidelines will determine your eligibility. Underwriting guidelines are the criteria under which you will be approved for a loan. Insurance companies use the same term, when they evaluate you for insurance. Underwriting guidelines assess the risk you pose to the company. In the case of a mortgage the lender is trying to decide what the chances are that you will default. What does this mean for you? If you have bad credit, you need to find a lender that has easier underwriting guidelines. The challenge is that most lenders, who accept a greater degree of risk in their loans, also charge a higher interest rate. So, if your credit is bad you will pay more.
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