Established credit is comprised of multiple accounts held over a long period of time. Too few accounts, held for a short period of time is cosidered thin credit
Anyone can be caught in a financial bind, but those that maintain their regular payments, through any hardship, will always have good credit
This is the amount of available credit used. Maxing out credit cards, lines of credit and loans is 100% utilization.
Your actual score will vary. Look-up your official score with Equifax and Transunion. See Order Report tab below for instructions
The aspirations of Canada's homebuyers are determined by a mindless, cold, proprietary algorithym called a 'credit score'. But now for the good news - it's just a number that's easily improved.
The two largest credit agencies in Canada are Equifax and Transunion. While Equifax has a larger market share both are check when applying for a mortgage. Equifax is checked by the bank and mortgage lender, while transunion is checked by CMHC. So it's important to order both and confirm the accuacy of both.
In a few moments you will receive an email with our report attached. If you don't see it right away check you trash/spam folder, just in case.
In our opinion this is the most important element of your credit score because it can negate years of perfect credit repayment, and out of nowhere threaten your ability to apply for a mortgage.
Credit utilization is how much of your available Missing payments on ones credit cards, ignoring debtors until their claim is put to collection, etc.; these are obvious things that everyone knows will hurt their credit. But here's the interesting thing about credit utilization, responsible actions may hurt your score while irresponible ones may help it! Yes. We know. This makes no sense. But we'll help you understand and prepare for that mortgage.
They are identical twins genetically, and oddly enough, financially.
Both are planning to buy a home and apply for a mortgage pre-approval in 12 months.
Each twin decides to finance the purchase of a new car
A new car loan, or loan of any type, doesn't not help your credit intially. As the balance of the loan is at the reported "limit" of the loan it increases their utilization rate and reduces their credit score!
When one finances a new vehicle the loan balance and loan limit are the same.
Mathematically this has the same effect on your credit score as "maxing out" a credit card.
Over time, when the car loan balance is much lower then the original limit, does the utilization penalty dissappear.
One twin decides to act responsibly while the other increases his financial risk. Who gets rewarded with a higher score?
NextThe twins each have a $40K line of credit with a $5K balance. The responsible twin pays this balance off and closes the $40K account so as not to temp himself again. The irresponsible twin does none of that, rather he opens up a new $20K line of credit and spends $5K of it on a backyard beer party.
Now the responsible twin has a 640 credit score due to a 100% utilization rate.
Logically it makes no sense since he is a less risky credit client; mathimatically though, it does and remember the credit score algorithim is blind to common sense
Here's the cold hard truth: If an individual is chronically late on their credit payments, allows items to go to collection or generally ignores and mismanages their credit - they will likely never own a home in their own name.
Too harsh? We don't mean to be, but this is the reality of mortgage lending after the 2014 Federal Government B-20 and B-21 legislation changes. Frequently, we receive applications for individuals with a credit score below 580 and the misconception that there are mortgage options for them. There really aren't any. Here are some common myths surrounding poor credit and mortgage approval.
Myth #1
Car loans and mortgages have completely different criteria for underwriting. Income and credit history requirements are less strict as well there is more room for exceptions to be made by dealership financing.
Myth #2
Until you have 20% down payment for a home purchase your application must pass approval of one of Canada's three mortgage default insurers.
They are uniform in their requirement of decent credit and a credit score of at least 600 with no major late payments in the last 24 months.
Myth #3
Mortgage financing like this was available in Canada prior to 2007.However, those products have completely left the market,
and with new federal legislation, are likely to never return. You can obtain a mortgage with poor credit and they will charge a
higher rate, however you will need at least 20% down payment for this again.
Myth #4
This is possible, however if one's credit is so low enough they be excluded from the application all together. Problem with this is the cosignor becomes
the only person on the mortgage and they aren't occupying the property, which means a much larger down payment, perhaps even 20% is required.
Myth #5
Avoid Rent-to-own agreements if you have poor credit. We have seen many individuals loose their rent-to-own "deposits" to landlords because their credit
has not improved enough over the year to approve for a mortgage. As well, if the contract to Rent-to-Own isn't done exactly right CMHC or Genworth will not approve the purchase.
We have yet to see one of these contracts completed correctly.
Myth #6
Spouses credit scores are not averaged. Each are separate and apart. If an applicant has poor credit their income is excluded from the application completely.
As such, the only income used in the mortgage approval will be the spouse with the good credit.