Any time you apply for credit in the form of a credit card, personal loan, auto loan, or cell phone, the company lending you money will want to access your credit report first. Your credit report is a snapshot of how you have repaid your financial obligations in your past. Lenders will use this information to verify details about you, see your borrowing activities, credit applications and repayment history. Part of this information is used to make up your credit score.

WHAT IS MY CREDIT SCORE?

Based on the information contained in your credit report, you will be assigned a credit score. What is my credit score, you ask? Your credit score is used by lenders to predict the probability that you will repay your future debt. Your credit score can change frequently based on multiple credit applications in a short time, missing payments and maxing out your available funds.

WHAT IS A GOOD SCORE?

Depending on which company is calculating your credit score, you can expect a range anywhere from 300 at the lowest end up to 900 at the highest end. The higher your score, the better the probability you will repay your loan.

As far as mortgages are concerned, each lender has their own criteria for what scores they deem acceptable. Generally speaking, anything over 680 is considered good in most lender’s eyes and will give you access to the most lenders and the best rates. A score between 600-679 will give you a limited number of options and might not be the best rates. Anything below 600 will leave you with very few lenders and higher interest rates to account for added risk.

5 KEY FACTORS CONTRIBUTING TO YOUR CREDIT SCORE

A number of different factors go into calculating your credit score. These factors are based on what someone does or doesn’t do with the credit they already have available. That is why the score changes frequently. Here are the 5 factors that determine your credit score:

1. PAYMENT HISTORY – 35%
The most important factor when calculating your credit score is your payment history. Creditors want to know if you will pay them back the money you are asking them to loan you.

Payment history reflects all the re-payments you make on your consumer debts. Your creditors will report (monthly) every time you make a payment to your credit cards, lines of credit, auto loans, personal loans, student loans, cell phone bills on contract and any other debts you may have. Interestingly enough, mortgage payments are not reflected on your credit report.

Your payment history shows information about whether or not you have re-paid your debts as agreed, have deferred or missed payments, any past due payments, a history of late payments and if you have any debts in collection as well as any bankruptcy, judgments, or liens, etc.

Your score also reflects how recent any late payments or collection activities are. The older the information gets, the less it will impact your score.

2. HOW MUCH IS OWED – 30%
When applying for new credit, how much you already owe is a big factor in determining your approved limit. Your current payments and debt obligations will help creditors access your level of debt and your ability to repay your debt obligations.

If you show multiple credit lines maxed out, say three credit cards and a line of credit, in the eyes of a lender the chances of you repaying new debt is low and thus you would be considered a high risk to default.

The amount of credit you use on an ongoing basis is considered as well. If you continually use 75% of your limit on your credit cards and lines of credit, this will affect your credit score negatively. Try to carry no more than 30% of your available credit on a month to month basis if practical.

3. LENGTH OF CREDIT HISTORY – 15%
If you’ve used credit for many years, your credit report should provide an accurate picture of how you use credit. For someone who has not used credit for a very long time, it is difficult to tell if they really know how to use credit responsibly.

Good or bad, most information will be automatically removed from someone’s credit report after 6 – 7 years, so the only way to keep a credit report active, is to use credit, at least very minimally, on an ongoing basis.

Time is needed to get a true picture of how responsible someone is with credit. This is why the length of your credit history is the third most important factor in your credit score calculation.

If you have recently obtained credit for the first time, your credit score will not be very strong. However, if you have been using credit responsibly for many years, this factor can work in your favour. If you need to apply for a low interest credit card to build your credit, apply online here.

4. NEW CREDIT APPLICATIONS – 10%
Applying for new credit in a short time span can signify financial stress. If you are a smart consumer, you should always shop around to get the best deal. You might walk into seven different banks and credit unions to shop your mortgage and hear what they can offer you. Smart move, right? – wrong!

Every bank will want to run your credit report to access your creditworthiness and having multiple “hits” to you credit report in a short period will reflect negatively. One of the benefits of using a Mortgage Broker is we use one credit report and shop your business to multiple lenders.

This part of your credit score takes into account the number of times your credit has been checked in the last 5 years, the number of credit accounts you have recently opened, how much time has passed since you opened any new accounts and the time since your most recent credit inquiries. This part of your credit score will also evaluate whether or not you are re-establishing your credit history following past payment problems.

5. TYPES OF CREDIT USED – 10%
Different types of credit shed light on how you manage your money overall. For example, deferred interest or payment plans can indicate that you aren’t able to save up for purchases ahead of time. Consolidation loans mean that you’ve had difficulty paying your debts in the past. A line of credit is a revolving form of credit, like a credit card, and it’s easier to get into trouble with a revolving form of credit than with an installment loan where you make payments for a set amount of years and then it’s paid in full.

If you focus on managing your finances wisely and only apply for credit as you need it, this part of your score should take care of itself.

WHERE DO YOU GET YOUR CREDIT REPORT?

You may contact Equifax and Trans Union to access your credit report. They may charge you a fee.

Welcome to the second month of 2016! We have all had a few weeks to settle in now and get back to reality and, as always, getting our finances in order is at the top of mind for many of us. Today we are going to look at a few tricks to help you navigate this as easily as possible.

1. Do you feel bogged down by the little payments? Consider refinancing your home to include all the little payments such as credit cards and smaller loans. Your overall monthly payment obligations can drop dramatically which in turn frees up your cash for your TFSA or other savings vessels.

2. Consider changing your payment frequency on your mortgage. Going from a biweekly payment to a biweekly accelerated will save you 2.4 years off your mortgage and thousands of dollars in interest. Failing that, consider the power of adding even $25 extra to each mortgage payment. In a year that is $300 if applied monthly which is $1,500 over five years. This cuts your mortgage down by three months way down the road. Small changes really add up.

3. Saving money is a discipline which is not contingent upon your level of income. If only the very wealthy could afford to save, then you would never hear of NBA players going bankrupt. I have seen clients making minimum wage with investment portfolios which greatly exceed those earning six figures a year. So all that being said, find yourself a professional financial planner and set a monthly automatic withdrawal. It’s way easier to save when it does not feel like a horrible and painful choice.

4. Call your credit card companies and get the best card you can. The annual fees on some cards can be quite high so you need to ensure you actually need the ‘perks’ the card gives you. If you carry a balance then you should make sure to ask for the lowest rate available. The difference between 19.99% and 12.99% adds up really quickly. While you have them on the phone and are negotiating like a boss for the best card possible, opt out of paper statements. Most companies charge you $2.00/month and it’s a nice little step you can take for the environment.

5. Get realistic with your spending. There is a terrific app brought to you by the makers of Quick Tax called MINT.com. You enter you banking and credit card info into this very secure and very free site and every time you make a purchase this app tracks it and allocates it to the proper category such as food etc. You can set a budget for every part of your life and receive notifications when you are nearing the limit you have set. It can be very eye opening to come face to face with your spending reality.

6. It’s a great idea annually to make sure your will is up to date. Life changes quickly and the last thing you want to deal with during this time is an incorrect will.

7. Another item for annual review is your insurance. Do you have enough or too much coverage? Are the beneficiaries reflected correctly? Are your homeowner and auto policies up to date and do they give you the coverage you want? One hour a year should be enough to give you piece of mind.

8. And finally, where could you save even more? Is your bank offering a better, all-inclusive plan to cut down on monthly fees? If not then maybe it’s time to look at your options. $25 a month per account really adds up. Is your cable cost efficient? Your cell phone provider remaining competitive? Are you opting for paperless statements to avoid unnecessary fees? If you saved even $50 between all of the above, that my friends adds up to $600 a year which you could put right against your mortgage in fact!

And there you have it, some pain free ways to keep your money. I mean it is your money after all. Have a great week!

The most important strategy that a home buyer could ever have is putting together a team of Real Estate professionals to help them make the wisest decisions in regard to the biggest purchase they will ever make; a property purchase. It is so very important to align yourself with a Realtor who has excellent property and market knowledge; an Accountant who understands the tax implications of buying a property, a House Inspector who knows what weaknesses to look for in the structure of a property, a Lawyer/Notary who has experience in property purchase contracts…

…and, of course, a Mortgage Broker who knows what products / offers are available and who can get you the best terms and sharpest rate available.

While one can simply go to their bank and get a mortgage (if they qualify), is it really the wisest decision to have that conversation with the financial officer at the bank without really knowing the ins and outs of what terms and conditions of a good mortgage should be?

Mortgage Brokers are meant to be professionals that reduce the stressful task of putting a mortgage application together and finding the best home for your mortgage. A good Mortgage Broker will explain all your loan options and suggest the programs that could be financially beneficial. When you go to the bank and speak with that same financial officer, they will only be able to provide you with information related to their bank. Simply put, they only know the products offered by the bank they work for and are not about to try and suggest other products offered by other banks, even if that is a better option for you.

Busy Mortgage Brokers that work for a successful mortgage arranging company have access to discounted rates that are not available anywhere else. Because of the sheer volume of mortgages that a busy company arranges, Mortgage Brokers are given better rates that you can’t find on your own. Since the Mortgage Broker is arranging mortgages every day, they know what products are available and they are aware of the sharpest rates being offered.

Reputable Mortgage Brokers have your best interest in mind FIRST! A good Mortgage Broker understands that if you are happy as a client under their direction, then you will likely refer your friends and family back because you have had a successful and satisfying outcome with your mortgage arranging experience. Mortgage Brokers rely on referrals and although they continue to market their services, referrals remain the bread and butter for a Mortgage Broker.

Mortgage Brokers are available and flexible with meetings and appointments. They are not confined to an immovable roster but work with you on your time. Generally, people are busy, and time is a valuable commodity. Mortgage Brokers will arrange a time to speak with you at your convenience, so that you don’t have to take time off work and loose wages, or wait two weeks for an appointment with your bank’s financial advisor and miss out on a time sensitive purchase.

Mortgage Brokers advise their clients on how to make their financial profile look favourable forto the lender. Financial coaching is part of the overall value that you will receive from a Mortgage Broker. Advising you on how to use your credit and what to avoid in the preapproval process is all part of what a good Mortgage Broker does for their clients.

Mortgage Broker services are FREE! The lender pays a commission to the Mortgage Broker and the client ends up with the best possible mortgage at no cost for the arrangement. The Mortgage Broker will pull your credit only once and will approach several lenders with that same “pulled” credit bureau…. yet another way a Mortgage Broker helps their client’s and protects their clients best interests.