Quick Credit Repair Guide

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2 Quick Credit Repair Guide Beacon score? You will most likely have heard of this bizarre term at some point during your home buying process and wondered what they meant and how they affect the mortgage rate you get. Your credit score plays a major role in determining how much a lender will allow you to borrow, the interest rate that you ll be able to get on your mortgage, or decide whether you ll be approved for a mortgage at all. It measures a borrowers credit risk based on a valuation of their financial history including details on credit cards, loans, mortgages, credit, and payment history. As a Mortgage Consultant, I see all shapes and sizes of credit reports. The higher your score and the higher the strength of your file, the lower the interest rate! The difference between a good and bad score can increase the cost of a loan by a substantial amount in interest paid. It is wise to start working towards a high credit score earlier on so you can reap the benefits of lower mortgage rates later on. In Canada, credit scores are generated by two private agencies Equifax and Trans Union. Equifax calls it the Beacon Credit Score and, Trans Union calls it FICO score Contents: Understanding Your Credit Score...3 Are You in the Red Zone?... 3 How to Repair Your Credit in 7 Easy Steps... 3 Success Story

3 Understanding Your Credit Score What comprises a credit score? There are five components, payment history (35 per cent), credit utilization (30 per cent), length of credit history (15 per cent), new credit (10 per cent) and types of credit used (10 per cent). It is important to note that different lenders set their own policies and tolerance for risk when making credit decisions, so there is no single cut-off score used by all lenders. Are You in the Red Zone? A red flag-raising applicant is someone who has defaulted on their loans and/or credit cards or has repeatedly missed payments and has maxed out their credit cards. Before applying for a mortgage, you should review your credit report annually give yourself time to correct any discrepancies you find on your credit report. Should you find any discrepancies, this guide will help you quickly repair your credit so you can qualify for a mortgage. How to Repair Your Credit in 7 Easy Steps 1) Correct All Errors on Your Credit Report Be sure to pull your reports from each of the major credit reporting agencies Equifax, and TransUnion. An error can exist on one report and not on the other, and you never know which credit report will be used in a lending decision, so it s important to make sure all three reports are accurate. Go through every section of each of your credit reports with a fine-tooth comb there will likely be a lot of information there. If you see any accounts you don t recognize or late payments you think were on time highlight them. You ll need to dispute each of those separately with the credit bureau who issued that report. Even if the same error appears on both of your credit reports, you ll need to file three separate disputes over the item. The dispute process 3

4 can be done online or via the mail with each of the credit reporting agencies. 2) Pay Your Credit Down to Below 70% of the Available Credit Line Your debt-to-credit ratio, also known as your balance-to-limit ratio or credit utilization rate, is the percentage of your available credit you are using. To improve your debt-to-credit ratio, make multiple payments during the month to keep the balance owed at 70% or less of your limit. For example, if you have a $10,000 line of credit, make sure you don t go above $7,000. If you do go above $7,000, pay it down as soon as you can. 3) Pay Your Bills on Time Paying your bills consistently, on time, and avoiding late payment is the only way to keep a positive payment history and clean credit score. After a credit card, loan, cell phone bill, mortgage etc. is late for 60 days, it shows up on your credit bureau report and that delinquent payment will remain on your payment history for up to seven years. If you have trouble remembering when bills are due, consider setting up or text payment reminders with your payees. 4) Pay At Least The Minimum Amount on Your Credit Card Each Month In order to maintain a good credit rating, you must pay at least the minimum payment due each month. Pay more if you can afford to. 30% of your credit score is determined by how much debt you carry, particularly on credit cards. This means that failing to pay charges on your card each month is similar to putting a dent in your credit score every month. Over time, this adds up to a lot of damage. 5) Don t Close a Credit Card Account Even if you re no longer using a credit card, keeping it open can help raise your score. Closed credit card accounts are included on your credit report. So closing an account may actually work against you as one-third of your score comes from your credit history so as soon as you close the old card, you cancel the history. Likewise, don t open a number of new credit cards in an effort to increase your available credit. 4

5 6) Don t Max Out Your Credit Card or Exceed Your Limit If you run your credit cards to the limit, it will ruin your credit rating. Having a maxed out credit card means that you are one missed paycheque or emergency away from not being able to pay your debts. To avoid this, it s best to try to stay under 75% of your limit. 7) Limit the Number of Inquiries If you are applying for a car loan or mortgage within a time period, inquiries made to your credit bureau are considered soft inquiries and have minimal damage to your credit rating. However, if there are multiple inquiries for store cards, credit cards, lines of credits, loans etc. over a longer period, the credit bureau looks as this as constantly seeking credit. When working with a Mortgage Broker or Auto Loan Broker with only one credit inquiry, the broker has access to multiple lenders at once. Success Story With Ajit s help, I now have a solid credit score. I was one of the early victims of the economic downturn. The company I worked for was sold and the restructuring under the new management left me with about 55% of the income I used to have. Bills started piling up very quickly and, at the time, Banks were not very receptive to the alternative payment arrangements that they offered later on in the recession. I was seriously considering giving it all up and starting from square one. After a preliminary meeting with Ajit, I discovered that I had a few realistic options in tapping into my condo s equity. The past two years have not been easy, but with Ajit s help, I now have a solid credit score, no bad debt, and a very manageable mortgage at prime minus 0.15%. Thanks, Ajit. You re a good man -- F.A from Vancouver, BC. About the Author Ajit Hundal is a Personal Mortgage Consultant located out of Vancouver, BC. Ajit gets to do what he loves, helping people. Ajit shops the entire mortgage marketplace in Canada and makes the lenders compete for his clients mortgage business. With over 50 lenders available 5

6 from banks, trust companies, credit unions and private lenders - he works hard to make sure his clients best interests are taken care of by providing not only the best rates possible but more importantly, the best mortgage product possible. Anybody can arrange a mortgage at the Best Rate, your bank can as well, but do most borrowers today really understand their exit strategy when they sell, pay down, refinance, or switch their mortgage. The wrong mortgage product can easily end up costing thousands and thousands of unnecessary hard earned dollars. His passion is arranging mortgages, understanding over 200 different mortgage products available in today s marketplace and never focuses only on the rate. Ajit works for his clients, not the banks! His service is 100% FREE of charge to the average consumer (OAC) as he receives a finder s fee directly from the lender. The next time you are shopping for a mortgage in Canada, he invites you to consider leveraging his expertise to negotiate the best rates and terms for you. Mortgage Advice Straight to Your Inbox Subscribe to our newsletter to receive the latest news, updates, notices, trends, and promotions within the real estate and mortgage industry in Canada. Socialise with LoanBox.ca Follow us on social media. To learn more, please visit or Apply Now for a bad credit mortgage. We ll respond within 48 hours Ajit Hundal. All rights reserved.