This is the first guest post on this blog, from Tsawwassen based Mortgage Broker Dan Patching on the topic of credit reporting, and what lenders look at when you apply for financing on a property.

When purchasing, renewing or refinancing your mortgage, your credit score can be the difference between allowing you access to AAA products, and having to go with an alternative lender.

The first step in the mortgage process is to complete an in depth application which tell the Bank or lender about you, your co-applicant, and your credit history. I assure you that even though one may have a steady job, and earn a handsome salary, if one’s credit is low, a majority of AAA lenders will reject the deal.

By definition – a credit score is a number assigned to a person that indicates to lenders their capacity to repay a loan. Simply put, how well one is at paying back/off a loan. Your credit report will highlight any late payments, collections made or if you’ve ever been bankrupt. Scores are as low as 300 to as high as 900. Anything above a 680 is fantastic, and is what lenders want to see. 650-680, you’re dancing a fine line, and anything under 650, one may have to consider alternate lending options.

In early 2015, the credit bureau was updated to show three credit scores, and one overall score.

1st score – Ranks you based on open credit, and balance to limit ratio’s. This means if you have multiple lines of open credit, and your balances are kept low, then your score is good, and will improve. If your balance is high, and held close to it’s limit, it’s time to make a change.

2nd score – Is based on late payments and collections over $250. If it’s been 90 days since your last payment, your score is lowered.

3rd score – Is based on the number of third party collections in the last three years, and your oldest revolving credit. This means that if you have outstanding parking tickets, or an unpaid gym membership that you forgot about, this effects your credit score negatively.

So why the change? Each score shows the lender the spending/repaying habits of their applicant, and if their credit score is on its way up, or down. It also allows the lender have a better understanding of how well the applicant will repay the requested loan amount.

What’s reported on the Credit Bureau:

  • Mortgage payments

  • Lines of credit

  • Credit cards

  • Student loans

  • Cell phone plans

  • Car payments

  • Personal loans

  • Etc.

Recommendations

  • Keep credit balance below 50% of limit at all times

  • Pay the entire amount of your credit card off every month, not just the minimum payment

  • Establish 2 trade lines of credit that have a minimum of $2,000. 1st trade line – Credit Card, 2nd trade line – Line of Credit

How to determine your current credit score – visit www.equifax.ca for your free credit report.