Century 21 Classic - About Your Credit

Many future homebuyers are concerned about how their credit report will affect their ability to buy a home.

If you have had credit problems in the past be prepared to fully disclose ALL the details so that your mortgage planning specialists can better direct the search for a lender who will look at prior credit problems. Also prepare a written explanation as to the full details of any particular past credit problem, most lenders want to see this as an indicator of your willingness to “own up” for your past mistakes, and to show that you have learned your lesson and will not repeat any past indiscretions.

The mortgage professionals know that quite often there are legitimate reasons for past credit problems, such as unemployment, illness, or most commonly marital splits. If you have had a problem that has been corrected, and your payments have been on time for at least a year, your credit may be satisfactory.

The message here is that if you have had credit problems in the past do not automatically give up. Many lenders in today's competitive mortgage market specialize in offering mortgages to higher risk clients. Other things being equal when you have had credit problems all of the other areas of the application are scrutinized more heavily, and if they are above average your chances of getting a loan increase substantially. The bottom line is, contact one of our associated mortgage planning specialists today, so together we can find you a mortgage lender that will give you the chance and financing you deserve.

Credit Guide Scoring
Many people do not know but most major financial institutions in Canada today have some form of credit scoring, and this is the main decision factor for your application. Simply put a bank officer will input your application into a computer and the computer will make an instant decision based on a scoring module accepted by the institution. Gone are the days where the bank officer alone makes the credit decision.

The major component of this scoring system is your credit Beacon Score. Your Beacon Score is a statistical model of assessing your credit risk. The score is a number that rates the likelihood that you will pay back a loan. Among other things your beacon score is primarily made up of the following items: Past delinquencies, derogatory payment behaviour, current debt level, length of credit history, types of credit, and the number of credit inquiries.

Your Beacon Score will place you in one of three categories:

If your score is above 680 you would be considered ‘A’ plus and your loan application should go through very quickly and smoothly. If you fall into this category you would qualify for a lenders best rates and perks.
If your score is below 680 but above 620 then lenders will take a closer look at all other aspects of your application. You will still likely get the same best rates offered as the previous category assuming the other areas of your application are satisfactory. The only main difference is it may take a few days longer to get a final approval and it may require more supporting documentation then the previous category.
If your score is below 620 you may be locked out of the best mortgage rates and terms offered. This is not to say you will pay a premium on the posted market rates unless your score is significantly below 600. If you are in this category it can be particularly frustrating if you keep getting declined for a mortgage.

What if there are errors on your report?
You have the right to dispute the accuracy of information in your credit file. By law when a credit reporting agency (in Canada this is primarily Equifax) receives a dispute they must investigate your concerns and record the current status of the disputed items within ‘a reasonable period of time”. Above all be prepared. In practice, the credit-reporting agency will require you to provide a convincing argument through documentation for the discrepancy. If the credit-reporting agency cannot verify a disputed item, it must delete it. If your report contains erroneous information, the credit-reporting agency must correct it. If an item is incomplete, the agency must correct it.

Finally for those items in your credit file, which you feel, deserve further explanation (such as an account was paid late due to an extended illness, or job loss, etc.) you may send a brief statement to the appropriate credit-reporting agency. The information will be placed on your credit profile for all future inquiries to read.