Everything you Need to Know About Credit

HomeHappy • Feb 08, 2021

Your Credit Score is more Important Than Ever

Your credit score is an evaluation of your risk level as a borrower. In Canada, it’s a number between 300-900 that’s calculated based on the data in your credit report. Designed to give lenders insight into your capacity to manage your finances and repay a loan, your credit score determines what rates, terms, and products lenders will offer. 

If you’re interested in a mortgage loan, having good credit is vital to getting a great deal.

Your score is generated by 2 main organizations: Equifax and TransUnion, and both credit bureaus allow you free access to your data. Since your credit score can impact your ability to make big purchases, don’t get taken by surprise. The more you know about your financial standing before making a big decision like buying a house, the more prepared you’ll be. 

See where you stand, ensure correct information, that there are no errors, or strange activity by ordering your credit report and score. While there are more details available, essentially you need to prove your identity with two pieces of ID and basic background information. Your detailed report will arrive by mail in two to three weeks. You can also pay for instant online access for around $24.

Follow these links for instructions on accessing your free credit report from TransUnion and Equifax. 

Credit Report and Credit Score -- Are They The Same?

Your credit report contains both personal identifying information like name and address, and contains all your financial information. It details your credit history, including repayment, types of credit, and may also include public records that might affect your creditworthiness -- like bankruptcy, judgements, and liens. Lenders use it to verify who you are, see your activity, and learn about your repayment history.

Your credit score is a number calculated using the information found in your report. It determines your risk level as a borrower. The higher the number, the better the odds are that you’ll repay your debt.

Credit Score Range

In Canada, our credit range varies from 300 to 900. Your credit score is a lot like a really basic game -- you get points when you use your credit responsibly, and lose points when you struggle to manage it. Like most games, the higher your score, the better.

For example, someone with very good (725-759) or excellent (760-900) credit has a high probability of being accepted for a mortgage because it’s unlikely they will default on payments. 

People with higher scores have proven they’re reliable and trustworthy borrowers and generally get better credit terms. That translates to lower payments, lower interest rates, and they pay less interest over the lifetime of their account. They’ve also built enough credibility to borrow larger amounts. 

People with a credit score below 650 may struggle to get new credit, so it’s best to strive for 680 or more to remain in good standing. Good habits create better outcomes, and make it easier to stay financially fit.

If you're far from this number, don’t fret -- everyone’s financial and credit situation is different, and lenders have different criteria to assess potential borrowers. No matter your situation, we can help. 

Besides, a bad score isn’t permanent. Your credit score is flexible and always changing. It’s like a game, remember? So change your strategy. 

Follow our tips below to set yourself up for a mortgage that suits you. 

Be Consistent, and Improve Your Credit Score

Here are 7 easy ways to get you back on track, and build great credit.

  1. Create a realistic budget that works for you, and incorporates your debt. Include some fun money so you are more likely to stick to your plan.
  2. Pay your bills on time. If this is a struggle, set payment reminders or schedule automatic payments so the money automatically goes where it needs to. Late payments lower your score, and timely payment is huge when determining your credit score.
  3. If possible, pay off your credit card by the monthly due date. If you can’t pay in full, always pay the minimum amount shown on your statement.
  4. Never exceed your credit card limits. Use your card responsibly, and keep your balance well below the limit by spreading your spending. The higher your balance, the more impact it has on your credit score.
  5. Don’t apply for too much credit at once. The more applications you make, the more a lender checks your credit report. Hard inquiries stack and damage your score. Plus, the credit bureaus can see multiple applications as a sign of financial trouble.
  6. Don’t close unused credit cards. While cancelling a card seems like a great way to prevent yourself from debt you can’t afford, a healthy credit score requires a long history of responsible usage. When you cancel a card, you wipe the history. Besides, a low interest card with a zero balance and only periodic usage can really help build credit.
  7. Regularly check your credit report for any errors, and see how you’re doing.

There’s no shortcuts in the game of life, and it can take 3-6 months for the changes you make to reflect in your score. It takes time, patience, and consistency to rebuild credit.

Start now, and let your future self reap the benefits. You’ll thank yourself later. 

What is Good Credit? 

Well, it means your credit score is 650+, you can borrow and pay back on time, you’re trusted with large sums of money, and you have financial freedom to make bigger purchases.

Why it Matters

Having a high score provides you with better opportunities and more choices. 

Good credit is a major deciding factor on whether you’re approved for a new credit product, and sets the terms and rates. A great score saves you money. Period. 

Not only through making better financial choices for yourself, but because you do so, lenders want your business and are typically willing to give you a better deal too.

A good credit score shows lenders you’re reliable and trustworthy. It proves to lenders that you’re a great candidate for a loan or line of credit. 

Ultimately, it means you're creditworthy.

How is Your Credit Score Calculated? 

There are 5 financial factors pulled from your credit history that determine your score. Each element plays a significant role, though they are weighted differently which changes how they influence your score. Let’s deep dive into the specifics.

Payment History (35%)
Your payment history is 35% of your credit score -- the largest contributing factor. Lenders want to know they will get the money back that you borrowed. When you pay your bills, whether or not you’re on time matters. Your creditors report how much you owe, your monthly payment, and when you pay. A negative credit past will do some damage, and if you have a positive, clean history, it’s likely you have a great credit score to reflect that. The longer you have credit reporting to the credit bureau without late payments, the higher your score climbs. 

Debt Owed (30%)
Your credit utilization, and how reliant you are on non-cash funds plays a major role in calculating your credit score. Your current financial obligations determine if you can manage more debt. People with a lot of debt have lower scores. Owing debt also means racking up interest charges, so paying off debt both increases your score, and saves you money. 

Pro tip: A great credit score involves keeping the balance on your cards below 30% of the limit. It’s better to spend your spending over several cards, than have one card nearly maxed.

Credit Account History (15%)
How long you’ve been a borrower matters because it can provide a more accurate view of how you operate. It means you’ve had time to establish your reliability and trustworthiness. Someone who’s used credit over a long period of time is seen as a less risky prospect than someone just starting out. That’s why it’s never too early to start building your credit, and it’s a good idea to keep old accounts open. Even with a zero balance, and minimal usage, an old account is great for your overall credit health.

New Credit (15%)
Whenever you apply for a new loan or credit product, a lender does a hard inquiry into your credit report which drops your credit score for several months. Unfortunately, this effect stacks. If you apply to too many new credit cards or loans all at once, your score could significantly drop. Multiple credit applications can signal financial trouble, and red flag you as a risky borrower.

Types of Credit (10%)
Your credit mix plays a small role, and looks at how many cards, loans, or lines of credit you have. Diversity matters, and having a different mix of credit can help build your score. Certain credit types are more beneficial for you. For example, a credit card from a major, traditional financial institution is way better than a store credit card.

Your Choices Matter, Spend Smart.

Bad spending habits, and swiping without a care can have you quickly drowning in debt. Every transaction counts, no matter how small the purchase seems. Little things can sneak up on us, and they stack fast.

Sometimes we forget a credit card isn’t free money. Then we make irresponsible choices because it’s easy not to consider the consequences. Especially in the moment.

When you signed the dotted line and accepted your credit, you agreed to pay your lender back, and on time. That’s why missing payments damages your credit score -- you aren’t keeping your word. 

Be smart with credit. Maybe you don’t see it right now, but every choice you make affects you. It hits harder than expected if you haven’t been paying attention.

Order your credit report to see where you stand. Ensure there are no errors. 

If you’re ignoring your debt or not monitoring spending, it’s time to make changes. Make a debt repayment plan. Pay off as much as you can. If necessary, talk to us about consolidating. Credit Counselling and debt management programs can make buying your own home near impossible, so it’s better to talk to someone who has your long term interests at heart. 

Make a realistic budget and know what you can spend. Set yourself up for success, with a plan that suits your needs. Give yourself the freedom of security and financial peace of mind.

Protect What You’ve Built

If you’re worried about the health of your credit beyond our tips to improve and manage it, you may want to consider a credit monitoring service. Both Equifax and TransUnion offer that option so you can stay on top of your credit and spot any fraudulent accounts and charges.

Talk to us about any concerns you have, or if you have any questions. We’re always happy to offer customized solutions and advice that suit your unique needs.

Share:

Recent Posts

Porting Your Mortgage

By HomeHappy • 08 May, 2024
Porting your mortgage is when you transfer the remainder of your current mortgage term, outstanding principal balance, and interest rate to a new property if you’re selling your existing home and buying a new one. Now, despite what some big banks would lead you to believe, porting your mortgage is not an easy process. It’s not a magic process that guarantees you will qualify to purchase a new property using the mortgage you had on a previous property. In addition to re-qualifying for the mortgage you already have, the lender will also assess the property you’re looking to purchase. Many moving parts come into play. You’re more likely to have significant setbacks throughout the process than you are to execute a flawless port. Here are some of the reasons: You may not qualify for the mortgage Let’s say you’re moving to a new city to take a new job. If you’re relying on porting your mortgage to buy a new property, you’ll have to substantiate your new income. If you’re on probation or changed professions, there’s a chance the lender will decline your application. Porting a mortgage is a lot like qualifying for a new mortgage, just with more conditions. The property you are buying has to be approved So let’s say that your income isn’t an issue and that you qualify for the mortgage. The subject property you want to purchase has to be approved as well. Just because the lender accepted your last property as collateral for the mortgage doesn’t mean the lender will accept the new property. The lender will require an appraisal and scrutinize the condition of the property you’re looking to buy. Property values are rarely the same Chances are, if you’re selling a property and buying a new one, there’ll be some price difference. When looking to port a mortgage, if the new property’s value is higher than your previous property, requiring a higher mortgage amount, you’ll most likely have to take a blended rate on the new money, which could increase your payment. If the property value is considerably less, you might incur a penalty to reduce the total mortgage amount. You still need a downpayment Porting a mortgage isn’t just a simple case of swapping one property for another while keeping the same mortgage. You’re still required to come up with a downpayment on the new property. You’ll most likely have to pay a penalty Most lenders will charge the total discharge penalty when you sell your property and take it from the sale proceeds. The penalty is then refunded when you execute the port and purchase the new property. So if you are relying on the proceeds of sale to come up with your downpayment, you might have to make other arrangements. Timelines rarely work out When assessing the housing market, It’s usually a buyer’s market or a seller’s market, not both at the same time. So although you may be able to sell your property overnight, you might not be able to find a suitable property to buy. Alternatively, you may be able to find many suitable properties to purchase while your house sits on the market with no showings. And, chances are, when you end up selling your property and find a new property to buy, the closing dates rarely match up perfectly. Different lenders have different port periods Understanding that different lenders have different port periods is where the fine print in the mortgage documents comes into play. Did you know that depending on the lender, the time you have to port your mortgage can range from one day to six months? So if it’s one day, your lawyer will have to close both the sale of your property and the purchase of your new property on the same day, or the port won’t work. Or, with a more extended port period, you run the risk of selling your house with the intention of porting the mortgage, only to not be able to find a suitable property to buy. So while the idea of porting your mortgage can seem like a good idea, and it might even make sense if you have a low rate that you want to carry over to a property of similar value, it’s always a good idea to get professional mortgage advice and look at all your options. While porting your mortgage is a nice feature to have because it provides you with options, please understand that it is not a guarantee that you’ll be able to swap out properties and keep making the same payments. There’s a lot to know. If you’re looking to sell your existing property and buy a new one, please connect anytime. It would be a pleasure to walk you through the process and help you consider all your options, including a port if that makes the most sense!

How to Handle Missed Payments

By HomeHappy • 01 May, 2024
If you’ve missed a payment on your credit card or line of credit and you’re wondering how to handle things and if this will impact your creditworthiness down the road, this article is for you. But before we get started, if you have an overdue balance on any of your credit cards at this exact moment, go, make the minimum payment right now. Seriously, log in to your internet banking and make the minimum payment. The rest can wait. Here’s the good news, if you’ve just missed a payment by a couple of days, you have nothing to worry about. Credit reporting agencies only record when you’ve been 30, 60, and 90 days late on a payment. So, if you got busy and missed your minimum payment due date but made the payment as soon as you realized your error, as long as you haven’t been over 30 days late, it shouldn’t show up as a blemish on your credit report. However, there’s nothing wrong with making sure. You can always call your credit card company and let them know what happened. Let them know that you missed the payment but that you paid it as soon as you could. Keeping in contact with them is the key. By giving them a quick call, if you have a history of timely payments, they might even go ahead and refund the interest that accumulated on the missed payment. You never know unless you ask! Now, if you’re having some cash flow issues, and you’ve been 30, 60, or 90 days late on payments, and you haven’t made the minimum payment, your creditworthiness has probably taken a hit. The best thing you can do is make all the minimum payments on your accounts as soon as possible. Getting up to date as quickly as possible will mitigate the damage to your credit score. The worst thing you can do is bury your head in the sand and ignore the problem, because it won’t go away. If you cannot make your payments, the best action plan is to contact your lender regularly until you can. They want to work with you! The last thing they want is radio silence on your end. If they haven’t heard from you after repeated missed payments, they might write off your balance as “bad debt” and assign it to a collection agency. Collections and bad debts look bad on your credit report. As far as qualifying for a mortgage goes, repeated missed payments will negatively impact your ability to get a mortgage. But once you’re back to making regular payments, the more time that goes by, the better your credit will get. It’s all about timing. Always try to be as current as possible with your payments. So If you plan to buy a property in the next couple of years, it’s never too early to work through your financing, especially if you’ve missed a payment or two in the last couple of years and you’re unsure of where you stand with your credit. Please connect directly; it would be a pleasure to walk through your mortgage application and credit report. Let’s look and see exactly where you stand and what steps you need to take to qualify for a mortgage.

Credit and Mortgage Financing

By HomeHappy • 24 Apr, 2024
Credit. The ability of a customer to obtain goods or services before payment, based on the trust that you will make payments in the future. When you borrow money to buy a property, you’ll be required to prove that you have a good history of managing your credit. That is, making good on all your payments. But what exactly is a “good history of managing credit”? What are lenders looking at when they assess your credit report? If you’re new to managing your credit, an easy way to remember the minimum credit requirements for mortgage financing is the 2/2/2 rule. Two active trade lines established over a minimum period of two years, with a minimum limit of two thousand dollars, is what lenders are looking for. A trade line could be a credit card, an instalment loan, a car loan, or a line of credit; basically, anytime a lender extends credit to you. Your repayment history is kept on your credit report and generates a credit score. For a tradeline to be considered active, you must have used it for at least one month and then once every three months. To build a good credit history, both of your tradelines need to be used for at least two years. This history gives the lender confidence that you’ve established good credit habits over a decent length of time. Two thousand dollars is the bare minimum limit required on your trade lines. So if you have a credit card with a $1000 limit and a line of credit with a $2500 limit, you would be okay as your limit would be $3500. If you’re managing your credit well, chances are you will be offered a limit increase. It’s a good idea to take it. Mortgage Lenders want to know that you can handle borrowing money. Now, don’t confuse the limit with the balance. You don’t have to carry a balance on your trade lines for them to be considered active. To build credit, it’s best to use your tradelines but pay them off in full every month in the case of credit cards and make all your loan payments on time. A great way to use your credit is to pay your bills via direct withdrawal from your credit card, then set up a regular transfer from your bank account to pay off the credit card in full every month. Automation becomes your best friend. Just make sure you keep on top of your banking to ensure everything works as it should. Now, you might be thinking, what about my credit score, isn’t that important when talking about building a credit profile to secure a mortgage? Well, your credit score is important, but if you have two tradelines, reporting for two years, with a minimum limit of two thousand dollars, without missing any payments, your credit score will take care of itself, and you should have no worries. With that said, it never hurts to take a look at your credit every once and a while to ensure no errors are reported on your credit bureau. So, if you’re thinking about buying a property in the next couple of years and want to make sure that you have good enough credit to qualify, let’s talk. Connect anytime; it would be a pleasure to work with you and help you to understand better how your credit impacts mortgage qualification.
Share by: