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Your Credit- How do you score?

With all the recent mortgage changes, your credit score is more important now than ever.  Most Lenders rely on the “Equifax” score.  Equifax calculates a credit “risk” score out of a maximum score of 900. A score of 700 or higher is considered an excellent score and opens the doors to better interest rates and bank approvals. A generally good score would run between 660 to 724.

If you have used Creditkarma.ca to find out your score, you are accessing a TransUnion score which is not used by many lender’s but it will at least give you a reasonable sense of how your credit is showing. To be sure of what a lender sees, you really should check your own credit through Equifax (www.consumer.equifax.ca/personal/).
I do NOT recommend paying a monthly fee to “manage” your credit through Equifax unless of course you have been a victim of identity theft or have had fraudulent activity with your existing credit.

Equifax does offer the opportunity to review the credit that is showing on your personal file and this is certainly worth reviewing on an annual basis. Look for the “Get my free credit report” button on the front page of the above site. It will not give you your score, but it will show you your credit history. If you pay things always on time, you can generally assume your credit score will be good.

Let’s look at the factors that determine your credit score (100%).

  1. PAYMENT HISTORY: ~35%
    Pay your bills on time, every time. Don’t skip payments ever, even if disputing a bill. Late or missed payments are what affect this portion of your score. If your tardy at making payments, then set up pre-authorized payments from your account to insure that at least your min payment is always being made.

It is important to avoid ever having your accounts sent to COLLECTION. No lender will provide a mortgage to someone with unpaid collections. If you are having a dispute with your cell phone or internet provider for example, always pay the bill and have the fight later!

  1. USED VS AVAILABLE CREDIT: ~30%
    Another large factor in determining your credit score is the amount of debt you are carrying as well as the amount of debt in relationship to the limit of the card or line of credit you are carrying from month to month. The best option would be to use the credit and pay it down to zero each month. The 2nd best option is to use the credit, but never carry over on a monthly basis more than 70% of your limit.Most important here, NEVER exceed your limit.
  2. CREDIT HISTORY: 15%
    This section of your file details how long your credit accounts have been in existence. This score is deceivingly low. It does only encompass 15% towards the whole score, but remember If you have no or minimal credit, most lenders won’t give you a mortgage. In a perfect world, lenders will want to see at least 2 different kinds of credit established for at least 2 years with minimum limits of $2,500 per trade record. Many people don’t like using credit, and therefore avoid getting cards. I agree with the avoidance of carrying credit balances, but having credit is a necessary evil. If you don’t have any credit, then suddenly need to borrow, no credit will cause you big troubles. Always have in your personal name at least two credit cards and learn to manage them wisely.
  3. PUBLIC RECORDS: ~10%
    Those who have a prior history of Bankruptcy, Consumer proposals, or collections are considered risky borrowers and therefore this can have a negative impact on your score
  4. NUMBER OF INQUIRIES: ~10%
    Anytime an individual’s credit file is accessed for any reason, the request for information is logged on their file. The only inquiries that may impact your score are those related to credit seeking, such as applying for a new loan or credit card. on your credit in the last 36 months will affect your score.Numerous calls looking for credit from different companies is a red flag for lenders and will generally lower your score.

Your own inquiry or inquiries of your existing creditors won’t affect your score negatively.

Here are a few suggestions to maintain or help you improve your credit score:

  1. Always pay at least the minimum payment on all debts and on time.
  2. Avoid carrying balance on credit cards or at least never be above 70% of their limits.
    Carrying multiple balances on cards on a month to month basis will impact your
    score.
  3. Avoid applying for multiple cards all at once. If you are seen as a “credit seeker”, it will reflect that negatively in your score.
  4. Review your credit report at least once a year and make sure it is accurate
  5. Pay down your credit cards before you pay off loans
  6. Avoid disputes with your creditors. If you have one, pay the bill, and then have the fight with the creditor. Remember that if your bill goes into collection, it will haunt your credit score for many years.
  7. Make sure that your partner or spouse has their own credit too. Remember that no credit can be as bad as bad credit. Many times I see a spouse having a credit card thinking that it is their own, when in fact it is a secondary card of the other spouse.

ID Required For Mortgage Financing

We have had a few occasions already this summer where clients have been unaware of Identification requirements for a home purchase, switch of a mortgage up for renewal, or a refinance of an existing home. There is nothing worse than finding out on your closing day that you’re missing the most basic documents required.

All borrowers in Ontario are required to produce one piece of legally acceptable ID (one per borrower) when signing with their lawyer.

  1. Some lenders will also require a second piece of identification, although that can often be as simple as a signed credit card or your Social Insurance card.”

This requirement CANNOT be waived so plan ahead and be sure that you are prepared. There is nothing worse than scrambling at the last minute when you are told that NO, your Ontario health card is not an acceptable form of ID.

The following are considered acceptable forms of ID when mortgaging property in Ontario.

The ID MUST be current(NOT expired). So make sure you check your expiry dates NOW.

Drivers License
Canadian Passport
Canadian Citizenship card
Permanent Residency card
Ontario Photo card

Remember, without proper ID, your file WON’T close!
Plan ahead now!

No Fee Banking :)

I thought I would share a link to the old PC Financial, now called “Simplii Financial”, which is ran/owned by CIBC. I have done the majority of my everyday banking with them for over 15 years, and if you are looking for “no fee banking” and great interests rates(especially now, offering 3% interest on all new savings accounts/deposits till Feb 29th), I highly recommend them. You can use any CIBC Banking Machine to access your accounts. Why pay banking fees if you don’t have to? No fee accounts and even free cheques, what is there not to like?
 

OSFI Expands Stress Test Rate

See below an update on new B-20 Lending Guidelines
As expected the updated “Stress test” will be applied to all mortgage borrowers(borrowing from any lender beginning January 1st of 2018). It has been clarified that the stress test rate will NOT apply for a mortgage RENEWAL if staying with the same lender.
Data Release: OSFI extends ‘stress test’ to all new mortgages
• The Office of the Superintendent of Financial Institutions (OSFI) released revised “B-20” guidelines for residential mortgage underwriting at federally regulated financial institutions. As was widely expected, the updated ‘stress test’ will be applied to all new mortgages beginning in January 1, 2018. Currently the test applies only to mortgages requiring insurance (i.e. those with down payments less than 20%).
• This change requires that borrowers qualify for mortgages at the greater of the Bank of Canada’s five-year benchmark rate or the contracted rate plus 200 basis points. For reference, as of this morning, the Bank of Canada posted rate was 4.99%(Nov 1st). It should be noted that OSFI will not apply the more stringent requirements in the case of a mortgage renewal.

So in January all borrowers, with less or more than 20% down payment or equity in a home will be qualified equally under the new rules if borrowing from a federally regulated financial institution.
This is not good news for anyone…

An “interesting” start to 2017

As January has seemed to fly by, I thought I would pass along a few ideas on saving money and paying less interest.

Awareness is the key. You would be shocked how many people I speak with who don’t know what is owing on their mortgage and more importantly what is owing on their other debts. Credit cards and Lines of Credit (secured and unsecured), being the biggest headaches/threats to our financial independence. It is likely that we feel better not knowing how much we owe, where in fact knowing is the first step towards getting out of debt.

Your 2016 End of Year Mortgage Statement will be coming to you soon- check your current balance and be aware of how much you paid in principle and interest last year. Force yourself to make one extra payment a year, and it will save thousands in interest over the term of the mortgage.
If you are currently paying your mortgage MONTHLY, change to an accelerated bi-weekly basis, this alone forces the extra payment each year without you really feeling it.

On the topic of interest cost, if you are carrying a balance on CREDIT CARDS, look at a monthly statement on them as well. The banks now must disclose the length of time in years to pay the card balance to zero, with making minimum monthly payments.
It can show a depressing length of time! So if you’re carrying card balances, work on those and forget about paying any extra against the mortgage. Try and automate the monthly credit card payment with a set larger amount. You will get used to it, and in no time, start to see the balance start to drop. The high interest rate of credit cards, should make them the priority over paying extra principle on a mortgage.

Regarding savings, start with looking at who you do your banking with and what your monthly account and cheque fees are. Monthly bank account fees can easily be from $10 to $50 dollars. A set of cheques alone can be $30.00.
For the last 15 years or more I have dealt with Presidents Choice Financial for my banking. There are NO BANK ACCOUNT FEES, and they give you your cheques for FREE. You can access your money either online(an easy to use on line platform) or from an ATM at any CIBC bank branch, Loblaws or SuperStore. If you don’t want P.C. Financial, then take a look at Tangerine. It is owned by Scotia Bank and runs on the same concept as P.C does- NO-FEE BANKING. They also offer high interest savings accounts.

I believe the most reliable and easiest way to save money is to automate the process. Pick a monthly amount, anything is better than nothing, but make it a reasonable amount. Then schedule for that amount to be automatically transferred out of your everyday chequing account into a savings account that you don’t have easy access to. With the transfer of money into savings done for you, you won’t even miss the money. Start today, and save for that well-deserved holiday or RRSP contribution.

If nothing else, take that change out of your pocket or purse each day and throw it in a bottle. You will be amazed how quickly it adds up. Remember that a dollar here and there is always better in your pocket than someone else’s, especially the big bad banks!

So that’s my two “sense” on paying less interest and saving money!