Lenders analyse credit reports from two credit reporting agencies (Equifax and TransUnion) to determine credit worthiness, or default risk. The purpose of this analysis is to provide information on the past payment behaviour of the applicant in order to assess the likelihood that this behaviour will continue in the future. A great deal of consideration is given to the credit report when applying for a mortgage. Every time you make a loan, or credit card payment, it is reported to these two agencies and shows up on your personal credit report or bureau. Every late or missed payment is also reported and will have a negative impact on your credit score (also called a beacon or fico score).
Collections, judgements and bankruptcies are very damaging to credit standing and remain on your credit bureau for up to 7 years. Collections and judgements must be paid before you can obtain a mortgage. With bankruptcy, you must be two years past your date of discharge and have at least one year of re-established credit to be considered for an insured mortgage.
Other things that affect your score include having a large number of accounts with outstanding balances, continuously keeping balances close to their limits, exceeding credit limits, and large numbers of inquiries. Scores range from 300 to 850 and the higher the better. A good credit score is very important as it will be used to determine whether or not an applicant qualifies for a mortgage, and can affect the amount of the loan, as well as the interest rate charged. A minimum score of 600 is generally required to obtain mortgage approval. Under certain circumstances, mortgages can be found for people with damaged credit and scores of less than 600. Speak to a Mortgage Professional for more information on these types of mortgage products.
Many people believe that not using credit is a good thing and makes them a strong candidate for future credit. In fact, the opposite is true. If you have no past credit history or current credit usage on record it is very difficult to obtain a mortgage.
You can get a copy of your credit report (with beacon score) from Equifax Canada for $23.95. You should review your report periodically to ensure that the information is accurate. Occasionally credit information belonging to someone else can end up on your report and negatively affect your score. It is a good idea to get a copy when you first consider home ownership, so you have some idea of your credit status before applying for a mortgage. You can obtain a copy by calling 800-465-7166 or online at www.equifax.ca.
For more information on how to establish credit, or repair damaged credit, contact
- Janet MacDonald
,
- Colin Birkas at 613-929-7629 or
- Jeff Dillon at 613-453-3663 or
