Your Canadian Credit Bureau report provides crucial infromation in your quest for the best mortgage product and rate in Canada. The primary source of information that the bank has on you is from this report. You need to know how to find the potential problems before the bank so you can be prepared for their questions. This is where a good Mortgage Broker comes handy. By hiring a Mortgage Broker he or she will work with you to find the best possible Mortgage for your situation.
Beacon Score
The first thing most banks look at in your Canadian Credit Bureau is your Beacon Score. This is a summary of your credit worthiness as determined by an automated system at the credit bureau. Many banks rely heavily on this score for loan/mortgage approvals and the interest rate you will qualify for.
If you want the best possible mortgage products and rate, you should plan on having a beacon score above 600. If you have a score over 750 on your credit bureau report and have investmentments in addition to your home, you will be able to choose from the best products,terms and interest rate. A beacon score over 750 is considered excellent.
If the beacon score on your credit bureau report is below 600, you will face an uphill battle to get a mortgage. This is considered a poor score. The rate is likely to be a little higher than normal, depending on your circumstances, as the banks are taking on more risk to lend you money than lending money to someone that pays their bills on time.
For tips on how to improve your beacon score we recommend you talk to your Mortgage Associate / Broker. A beacon score between 700 and 750 is considered good. Quite often, a score of 650 or more can be increased over 700 with a few simple steps. It is worth it to have a score over 700.
Credit scores can change daily. Depending on the situation, it may be fairly easy to increase your score and get approved at a good rate for your mortgage. An online monitoring service will keep you updated on where you stand whenever something changes on your credit bureau report.
There are some lenders who will look beyond just the beacon score in your Canadian Credit Bureau. Some banks will give the more experienced loans officers the authority to approve mortgages if a person has bad marks on their Canadian credit bureau report. A mortgage broker can help find a lender willing to offer a good interest rate if you have issues on your credit bureau report.
Collection Notices
Your Canadian Credit Bureau Report shows all collection, bankruptcy and Orderly Payment of Debt (OPD) activity for a full seven years. This is why it is important to pay attention to this section because disputed bills, old, forgotten bills and current collection activity shows up here. Disclose all previous slow payments, and collection to your Mortgage Broker and the reason why for such slow payments. Banks will not give you a loan if there are unpaid bills in this section. Many banks will not even lend you money to pay off those bills, you Mortgage broker may know of some lenders who may allow one collection at the most on your credit bureau but this will come with a higher interest rate. Pretty much all collections must be cleared off your credit bureau report ASAP, in order to get financing. The beacon score really takes a beating if you have an unpaid entry in this section of your Canadian credit bureau report.
If you don’t have the money to pay off a debt, the only option is to get some sort of a consolidation loan in the form of a second mortgage or a private loan from a friend. Once your Canadian credit bureau report shows that you have paid off these bills your beacon score will improve. If the collections were several years ago, the beacon score will improve quite a bit. The score will also improve substantially if you only had one or two recent collections. However, if you had collections several times in the past six years, you will need other help to improve your Canadian credit bureau report.
Late Payment History
Late payments on your Canadian credit bureau report show up as an “R”, “I” or “O” rating. The importance of the late payment shows up as a number from 1 to 9. A 1 is the best rating. It shows that you have paid your bill within 30 days of the due date.
An R2/I2/O2 shows an uncaring attitude toward debts. If you have one or two, no one cares. However, if you have several of them, bankers start to get nervous. The general rule is that a “2” rating is not serious, however, loans and mortgages have been turned down with as few as three “2’s” if the rest of the mortgage application is not strong. The best source of evaluating the importance of “2” ratings is to have a conversation with your Mortgage Broker. You may still qualify for the best mortgage product in Canada.
A “3” rating on your Canadian credit bureau report indicates some financial problems. If it is current, you need to have a good explanation to get the best mortgage rate. If the “3” is one or more years old, you still need an explanation, but many lenders will try to overlook it on an otherwise strong application. If you have more than one “3” at any time within seven years it may be a challenge to get the best mortgage rate, but you will still qualify for a mortgage somewhere. Contact your Mortgage Broker to discuss your situation.
A “4” or higher rating on your Canadian credit bureau report means serious trouble. If you have even one of these on your credit bureau report, many banks will not even entertain giving you a loan or a mortgage. You’ll need a Mortgage broker definitely.
A rating of “9” on your Canadian credit bureau report is as bad as it gets, other than a bankruptcy. Most lenders will not provide a mortgage with someone that has a current “9” rating. However, there is still hope. A good explanation combined with the Mortgage Broker’s expertise may do the trick. He/she may still be able to get you a good mortgage rate. If the “9” rating is two or more years old, most lenders will shy away from the deal, but your mortgage broker may know of a lender or two who would be willing to provide a mortgage for you.
Bankruptcy
A bankruptcy showing on your Canadian credit bureau report is a serious thing regardless of how long ago it happened. If you have only had one bankruptcy, the listing on the Canadian credit bureau report will disappear at the end of the seventh year. However if you have had more than one bankruptcy, all of them will be on your Canadian credit bureau report forever.
If you have had one bankruptcy, you may still qualify for a mortgage soon after the bankruptcy. The trick is to get establish a good credit rating right away. You can get a secured credit card, a car loan, a furniture or appliance loan etc. at high interest rates. If you are fortunate enough to be reading this before you decalare bankruptcy, try to continue payments to a couple of creditors (like your home and car) through the bankruptcy. If you can do this, you will be able to get new credit soon after the bankruptcy. It won’t be easy, but your mortgage broker may be able to help you. Even if you haven’t been able to keep some lines of credit open through the bankruptcy but have re-established some credit, you may still qualify for a mortgage. The mortgage interest rate may be a little high, but at least you would be able to own a house.
Too Many Debts
If you have too many debts showing on your Canadian credit bureau report you may still have a chance of qualifying for a mortgage. One way to handle it is to somehow consolidate your loans. Another way would be to get a cosigner to add income to your application. You may also have some income that normally doesn’t show up on your income tax return that can be used by some lenders.
Your mortgage broker would definitely be a good resource if you have a strong Canadian credit bureau report but the debt load is a little high. Even if your own bank has turned you down, if there is a way to make the numbers work, your mortgage broker will find it.
Many times when the debt load is starting to build up, you may go over the limit on your credit cards. The credit company is happy to let you do this once in a while, but your beacon score really takes a hit. Whenever possible, stay at least 30% below the limit on your your credit lines/cards. If you can do this with all your credit, the Canadian credit bureau report will reward you with a very good beacon score and the bankers will be chasing you to give you more and more credit at the best terms they can offer.
Of course, the best thing to do is to get out of debt quickly and stay out of debt.
