I finished last week’s post by advising that you check your credit score and report regularly, and much of this post will elaborate on that.
But first . . .
- You cannot be late on your payments
Most creditors who report to the bureaus do so monthly, indicating the amount due, the amount that was paid, and whether the payment was on time. One of the main things lenders look at, is how consistently you make your payments on time. The report summarizes the number of times you have been 30, 60, 90 days late, and so on (with designations such as R1, R2, etc., all the way to R9).
Besides late payments having a huge negative impact on your credit score, even a single late payment within the last year may prevent you from getting a mortgage.
- The Credit Bureaus are not your BFF
The credit bureaus are not government agencies, nor regulated. They are simply private enterprises that collect, summarize and distribute your credit information. They are entirely limited by the information they receive from creditors and yourself. They owe you nothing, except to not release your data without your permission.
When you request your own report and score, that is permission. But, before releasing the data even to you, they will ask you a series of questions (at least the first time) to ensure it is really you. Before anyone else can request your data, they need to get your permission.
Beyond that, don’t expect them to have any obligation towards you or the data on our report. So . . .
- It is up to you to ensure that your report is accurate
Because the bureaus are dependent on the information sent to them, there can be errors and omissions on your report. I’ve seen enough reports to know that errors and omissions are rampant.
One of my clients had trouble accessing his report, and then got confusing results that didn’t make sense. After many contacts taking up the better part of a year, it was ascertained that he actually had two reports under his name, with some information on each. The two finally got merged, but he’d lost almost a year of credit repair in the meantime.
A friend recently asked me about checking her report, not having done it before. I explained how to go about it, but her results came back “too little information on file to generate a report.” She was stunned: she had a few credit cards and an impeccable track record and, I suspect, a score well into the 800s. “Did you report your address change to them,” I asked? “Did you report your name change?” She’s facing a huge task now, to sort that all out.
Beyond that, creditors, trustees, etc. are not required to report everything. I’ve seen bankruptcies on reports that had been discharged years previously but still showed as active. Some trustee never reported the discharge. It’s up to you to chase the bankruptcy trustee to get that fixed. The problem is even worse for collections. I regularly see collections reported twice, and frequently they are not reported as paid off when they have been. The collector just never bothered to report that.
Such inaccuracies kill people’s credit and their chances of getting a mortgage. Yet, the lenders place very heavy weight on the credit reports. I’ve pleaded with my Member of Parliament to press for legislation that would, at a minimum: a) require Collection agencies (and other “negative” reporters) to contact the recipients before slapping the info onto their report, and b) require them to report a paid-up collection within 30 days
He agreed that that was reasonable, but then averred, “This is the very first time this concern has ever been raised with me.”
Bottom line: Check your report regularly, report any changes in your status (name, address, job), and chase down inaccuracies with the reporters that have made them, as hard as that might sometimes be.
- Never abandon a fight with a creditor
Disagreements with creditors are common. This is especially true of mobile phone contracts. A client changes plans, not realizing that they are breaking the terms of their original contract (which they probably never read), and the company slaps them with the payout balance. They fight over it briefly, the client refuses to pay up, and thinks the fight is over.
It’s not! The creditor reports it as a delinquent payment to the credit bureau and probably sets up a collection. Sting as it might, if you cannot come to a settlement with the creditor (and that’s not just limited to phone companies), you’re usually best to simply pay it out—or face a high price later when you’re denied a mortgage.
- You must be up-to-date with Canada Revenue Agency
If you owe CRA anything, you’ll certainly be denied a mortgage. That’s because anything you owe to CRA stands ahead of your mortgage in order of priority. If you default and go into foreclosure, the bank will not a get a dime before the CRA is fully paid out.
Therefore, no lender will even consider your application without asking to see your latest Notice of Assessment from CRA, and will require that any delinquency be cleared up before approving a mortgage.
A corollary to this: if you’re behind in filing your taxes, you will not have an up-to-date NOA, and therefore will likely also be turned down. So do your taxes . . . on time!
- You have multiple credit scores
As crazy at it may seem, when a lender does a hard hit on your credit file, they may not get the same score you got on a soft hit. That’s because the credit bureaus have slightly different algorithms for hard hits and soft hits. Why?—No one knows (they are very secretive about this!) The scores are usually close, but not necessarily identical.
Beyond that, your scores from TransUnion and Equifax may be quite different. That’s because not all agencies report to both bureaus, so your data on the two may not identical (besides algorithm difference).
And finally, besides the two big bureaus, there are now many other agencies through which you can access your report and score, with each having their own algorithms for the very same data. Thus, Borrowell’s score may not be identical to Equifax’s and CreditKarma’s not identical to TransUnion’s. Many banks now also offer free credit scores based on TransUnion or Equifax data, and these are run through their own algorithms, developed for their own purposes, thus creating even more diversity of scores.
That is why we aim for a 700 score for a 90% mortgage, even if the stated minimum is 680.
And, to make it a baker’s dozen . . .
- Credit help is available
Credit coaching is an integral element of our rent-2-own program, and that of any other reputable rent 2 own provider, as well. I always advise anyone interested in rent 2 own to deal only with rent-2-own providers who are members of the Canadian Association of Rent to Own Professionals, as a strong credit coaching program is a requirement for their acceptance into this self-regulated Association.
Many of our clients come to us because their credit is not yet good enough to fully qualify for a mortgage. Most do not even know what it takes to reach that goal. (Did you before these two blog posts?) We set up a program to monitor and coach them towards mortgage-able status so that they will qualify at the end of the period. At the end of the day, though, we can only guide and coach; we cannot fix their credit for them.
For further education on the topic, I recommend The Nine Rules of Credit: What the average Joe needs to know, by Richard Moxley. Even I reference that book occasionally.
After being a mortgage broker for many years, Moxley realized the importance of getting more information to the public, so wrote the book. He has since pivoted his business to help people correct errors on their reports. As noted earlier, this can be onerous task. Moxley knows the “ins-and-outs” of the agencies, and how to deal with them. For a fee, he will work on your behalf to correct errors.
I highly recommend his services, which you can find at: http://creditgame.net