Understanding Your Credit Report

As credit has become more and more abundant in our society, your credit report, and thus your credit rating, has become more important in your daily life. Your credit rating affects all aspects of your financial activities when it comes to borrowing money. Your credit rating also has the ability to affect the job you get, the apartment you rent, and even the ability to open a bank account.

Your credit report itself is simply a listing of all of your mortgage and consumer debt. Here in Canada, the two main credit reporting agencies are Trans Union and Equifax. Both agencies have a credit history file on anyone who has ever borrowed money. Every time you borrow money, or make a payment on a loan or credit card, the lender then reports the information about the transaction to these two agencies. In addition to credit information, you will also find liens and judgments on your credit report as well as your address and possibly your work history. The accumulation of all of this information is called your credit report.

The information on your credit report varies based on your creditors and what they have reported about you. Potential lenders and others, such as employers, view your credit history as a reflection of your character. Whether we like it or not, our financial habits have a lot to say about the way in which we choose to live our lives.

The credit score, or beacon score, is a number which gives mortgage lenders an idea of your lending risk. Credit scores range from 300 to 900, the higher your credit score the better. The mortgage products and interest rate that you will qualify for are often determined by your credit score.

One thing that many people do not know is that you have the legal right to obtain a copy of your credit report. A mortgage professional can help you obtain a copy of this report and go through it with you to verify that all of the information is true and correct. This can be important for first time home buyers who need to prepare for their first purchase, and may need to do some work to get their credit score a little higher in order to qualify for certain mortgage products.

The good news is that your credit report is a working document. This means that you have the ability over time, to repair any damaged credit and increase your credit score.

In order to obtain a copy of your credit bureau with the credit score you can order it online at http://www.equifax.ca/

Understanding Your Credit Report and Credit Score

[Source - Financial Consumer Agency of Canada]
If you have ever taken out a loan, used a credit card or taken advantage of a “buy now, pay later” offer, you will have a credit history.

Whenever a financial institution, such as a bank, a credit card company, or any other business gives you credit, it may send information about whether or not you make your payments on time to a credit-reporting agency. Credit-reporting agencies, also known as credit bureaus, are businesses that collect information about you and how long it takes you to pay back money you have borrowed. This information is called your “credit history”. When you want to borrow money in the future, the lender will check with a credit-reporting agency to see if you have a good credit history.

Having a good credit history is very important. If your credit history is poor, a lender can refuse to give you a loan. You may not be able to get a mortgage to buy a new house, or take out a personal loan. If the lender does decide to give you the loan, a poor credit history may mean you will have to pay a higher interest rate. A poor credit history can affect you in other ways, too. For example, a landlord may refuse to rent you an apartment because of a poor credit history.

A credit-reporting agency provides information about credit history in two ways, as a credit report and as a credit score.

The Financial Consumer Agency of Canada has published a very informative document providing tips about building and maintaining credit. To download the document - click here

Five Ways to Boost your Credit Score

Leading up to the holidays is the perfect time to think about things like improving your credit score and consolidating debt. After all, the holidays are a joyous time that should not be overshadowed by financial woes. And even if your credit score is good, these tips may make it even better. After all, the better your credit score, the fewer hurdles you’ll have to overcome when looking to renew or refinance your existing mortgage, or obtain a new one.

Following are five steps to a speedy credit score boost:

1) Pay down your credit cards. The number one way to increase your score is to pay down your cards to 30% of their limits. Revolving credit like credit cards seems to have a more significant impact on your score than car loans, lines of credit, and so on.
By paying down your cards to 30%, you are leaving a big gap between what your limit is and what you owe – a move that is very favourable to increasing your credit score.

2) Limit the use of your cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you paid it all off the next month. By being more accountable of your spending on a daily or weekly basis through the use of a budget, you can keep those cards below the magic 30% mark.

3) Check your limits. If your lender is slow to report your monthly transactions, this can have a big impact on how another lender may view your file. Make sure everything is up to date. Old bills that have been paid can come back to haunt you.

Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring formula that you’re regularly maxing out that card.

You could go on a wild spending spree to raise the limit, but a more sensible solution would simply be to pay your balance down or off before your statement period closes.

When making payments online, do so about a week before the period closing date printed on your latest statement to ensure the payment is received on time – it can take up to five business days for a payment to be received. This won’t raise your reported limit, but it will widen the gap between your limit and your closing balance, which should boost your score.

4) Keep your old cards. Older credit is better credit. If you stop using those older credit cards, the issuers may stop updating your accounts. As such, they will lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the card for a long time. Use these cards periodically and then pay them off.

5) Don’t let mistakes build up. Dispute any mistakes or situations that may harm your score. If, for instance, your cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

As always, if you want to talk about your credit score or consolidating debt, I’m here to help. Please call me at 416 807 7123 or email me at gbarrow@dominionlending.ca

If you want to know your current credit score you can order it from Equifax online at Get Your Equifax Credit Report Now!

Canadian Mortgage Industry Changes

Last week October 15th came and went and with it some very good changes to our mortgage industry. Specifically the end of 100% financing, and 40 year amortizations. The minimum beacon to qualify is now 620, and the TDS ratio is now at 45.

I have always felt it is better to put some money down when buying a home and now the minimum required is 5% down.

Traditionally mortgages were amortized for a maximum of 25 years. Over the past couple of years the options were increased to 30, 35 and even 40 years. This made it easier to qualify, however left little room for homeowners to make the adjustment to increased payments if the rates were to go up. The maximum amortization period for mortgages has been reduced from 40 years to 35 years.

The minimum credit score requirement is now 620. If you are close to that score either above or below and considering purchasing a new home soon there are a few things you can do to help keep your score above or bring your score above 620:
1) Do not have too many inquiries on your credit
2) Make all your payments on time
3) Keep your balances within their limits
4) If you do happen to have a collection, pay it off at once and fax your final release letter to Equifax and TransUnion.

If you do not know your score you can order it from Equifax online at Get Your Equifax Credit Report Now!

Under the new rules, the TDS is set at a maximum of 45 percent. TDS is the Total Debt Service Ratio which is your principle and interest payment plus property taxes and heat plus you debt payments divided by your income.


For more information on any of the recent changes please contact Gregory Barrow by phone at 416 807 7123 or by email at gbarrow@dominionlending.ca