Many immigrants to Canada cannot understand how their credit rating doesn’t let them get the best mortgage. Clients who’ve always been responsible with their money can find themselves having trouble because of their credit. How come no one is willing to rent them a house? Why are they having trouble with the cellphone company? They’ve had their credit cards for a year and half; they’ve paid on time, in full, every month. They even bought a car six months ago; every one of the eleven dealerships they visited told them their credit was good. So why aren’t they being approved for a mortgage?
Credit rating is one of the first things you have to take care of when you move to Canada. It’s a three-digit index, which ranges from 300 – 900; higher scores give you more options. 700 is the critical number: a rating above 700 means that any financial institution will be happy to lend to you at the best rates. A rating below 600, on the other hand, means that you will find it extremely difficult to get a mortgage from a bank. Furthermore, banks are not the only ones looking at credit when making decisions; even landlords will look at your credit report before they rent to you, in order to determine if you honor your commitments.
The use of credit rating has expanded in recent years. Other companies, like cellular companies, now demand to see your credit report before taking you on as a client. A credit report includes all of your credit products, such as credit cards, loans, and lines of credits, as well as your payment history. Your score represents your personal credit history; it goes up and down all the time. A number of components go into calculating your credit score. Interestingly, some practices that are common among immigrants trying to manage their credit wisely, such has having only one credit card or using their credit infrequently, can actually lower one’s credit score. The higher the debt-to-credit ratio on your accounts, the lower your credit score. A debt of $540, if it’s on a credit card with a limit of $550, will hurt your credit score much more than a debt of $21,000 on a $40,000 line of credit. If you forgot to pay it on time, even one date late, your credit score can drop as much as 70 – 80 points. Repeated late payments are a credit death sentence. Furthermore, if your credit report is retrieved many times in a short period, it might also lower your credit for a short while and then it will go back to the previous higher level.
Our client above is being hurt by the fact that he only has one card, as opposed to two or three credit channels minimum, and pays on the last day of the billing period. When our client makes his payment on the last day, the teller puts it in the system, and with the time it takes for the payment to post to his account, it shows up as a late payment on his credit report. On top of this, his credit was further damaged when he visited eleven car dealerships in one week; each of those dealerships pulled his credit report, and all of those pulled reports in a short period (as opposed to two to three times a month), lower our client’s credit score.
A high credit score opens doors and saves you money. It’s important for you to know that you can monitor your credit score by asking the credit reporting companies (Equifax and TransUnion) for your report. You can sign up for a membership with one of the agencies or both and receive your report by on the spot. The service costs monthly fees, so don’t forget to cancel it when it’s not needed. Getting your report will enable you to monitor your score regularly and start on the road to purchasing a house or car.
Repairing your credit score can take months or, sometimes, even years. A focused analysis and specific plan are necessary because improving your score will save you significant amounts of money. It is highly recommended that you take the time and prepare correctly, including repairing your credit, before buying as house as either a residence or an investment. I would love to consult with you, by phone, entirely free of charge, as to how you can build or rebuild your credit score.