One of the critical steps towards financial responsibility is understanding your credit history. Did you know that as a consumer you are able get a copy of your credit report, and have the right to correct any errors in the report? It is not uncommon to see various mistakes on the report, old accounts shown as open or accounts you forgot about showing balances owing. There may even be issues with identity fraud, so it is prudent to complete the review. When you request your own copy, it does not affect your credit score, unlike if a lender pulled your report.
Resolving these issues may take time, especially if means you have to rebuild some history to correct past credit issues. You do not want to be doing this when you are under a tight timeline with request for financing approval. Also, it is very helpful to share your credit history with a mortgage broker upfront during the planning stages. This avoids any surprises or disappointments with financing, and paints you as a more prepared and responsible applicant because your broker is able to explain any issues in the report readily if the lender asks.
Start building up a credit history as soon as possible
Lending rules are constantly becoming more stringent, not only because of debt management concerns, but also because of fraud, money-laundering and terrorism concerns. Sometimes applicants are unable to qualify due to limited or no credit history. For the most part, in order to count income to qualify, lenders need to see a credit history. Previously it was not so much a problem applying for a mortgage.
A specific example is a spouse pair, where one person manages the finances and holds all the credit cards and loans. In the past, the spouse co-applicant with limited history may have been approved, but now lenders are expecting individual histories. Even joint credit cards and lines of credit are not enough history, lenders want to see ability to handle credit individually.
Another common example is individuals who live on a cash diet. Ironically, these people could be one of the most financially responsible people you know, as they limit their spending to what they actually have in savings. However, cash does not have a paper trail and there no documented history of repayment, which lenders need to see to make their decision whether you are able to repay them. Often this is seen with older individuals, who have lived during times where approaches to debt and getting approved of a loan were different.
Lastly, individuals new to the country understandably would have no credit history. They should make it a priority to start as soon as possible to building up the credit.
Correcting or building up the credit history takes time. You need to have a plan and an understanding how credit works. A mortgage broker could provide insights and recommendations specific to your situation and discuss with you lender specific solutions that may be available in your current situation.
There are two main credit report providers in Canada. Equifax is the biggest one. You can get an instant report, which shows an instant score and explains the report in clear language, for under $25 or you can get free Equifax report by mail, which presents the information in less comprehensive format (and no score). Transunion is the other vendor, similar reporting structure, instant report online with payment or free report request by mail.
Are you planning to buy a house? Shopping for a mortgage can be confusing, the product features vary significantly. Having sold real estate in Whitby and the Durham Region for over 25 years, I can help you with the buying process. If you wish, I can refer you to a mortgage specialist that can explain the products and help you choose the right mortgage product. Try out my Mortgage Calculator and contact me today!
Broker of Record
Royal Heritage Realty Ltd.
Offices in Pickering and in Whitby