How is your credit score calculated? It is a complex answer and, as such, common myths persist. Today, we are going to help you get a better understanding of your credit score and how to make the grade by busting the most common credit score myths!
MYTH #1: Too many credit cards will hurt my credit score
The reality is that cancelling healthy, active cards or accounts hurts more than having too many. When you cancel a card, all your payment history is lost as well as the type of credit granted. While you may think having a couple credit cards is extreme, the average Canadian has TEN credit sources. What many Canadians don’t realize is that lenders want to see a history of credit; they want to see payments made on time. In addition, lenders also want to see balances maintained at no more than 70% of your credit limit in use. So, if you have a $10,000 credit card, you don’t want to owe more than $7,000 on it at a time.
MYTH #2: Avoid Using Credit Cards If You Want to Build Credit
It is easy to think that different forms of credit matter more than others, but that is simply not the case. In fact, all lenders want to see is a history of credit and payments made on time. This is what will build your credit score and, eventually, give you the ability to qualify for financing. A history of on-time payments and manageable balances shows the lender that you are a promising investment and not likely to default.
MYTH #3: Paying Monthly Utilities Builds Credit
Unfortunately, paying utilities does not build credit. In fact, these providers only check your credit score to determine creditworthiness; they don’t report your payment history to the bureau. Unless you are late to pay, that is. The other organizations that only report on default are municipalities and vehicle insurance providers, so make sure you keep these payments up-to-date. Be sure to pay any traffic tickets and bylaw infractions too!
MYTH #4: I Can’t Do Anything Once a Payment is Late
Don’t be discouraged. Lenders understand that you are only human and, in many cases, they are often willing to work with you if there is a late payment. If they are notified within a timely manner, a late payment can be easily reversed. Just be careful not to make a habit of it.
MYTH #5: Checking My Credit Score Will Decrease It
No exactly. There are two types of credit inquiries: soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull this type of inquiry when marketing pre-approval offers. Soft inquiries do not affect your credit score.
A hard inquiry, on the other hand, is triggered by the applicant when submitting a loan or credit card applications. As a result, hard inquiries will affect your credit score slightly as they are included in the calculation done. Recording the number of inquiries a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit; this can be a precursor to someone facing credit difficulty. Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquiries is for preventing identity theft. Hard inquiries that aren’t made by you could possibly be from a fraudster trying to open accounts in your name; therefore only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked.
In addition, hard inquiries remain on all credit reports for two years, after which they are removed. Soft inquiries only appear on the report that you request from the credit bureaus and will not be visible to potential creditors.
Credit score plays a vital role when it comes to potential financing for car loans, mortgages, or even personal loans. It is important to recognize good credit habits now and maintain them for a higher credit score today, and better chance of financial approval in the future.
You may have heard that rates are changing, and that is true. They don’t call it war for nothing and you need an expert by your side!
Think of mortgage brokers as your loyal soldiers. What we are seeing is exactly what we anticipated when prime rate goes up and discounts go down. Confused? Don’t be, variable rates are based on prime and both Bank of Canada Prime and Bank Prime are different.
What the new discount means is what it means – they anticipate prime to go up higher.
With current regulations, borrowers qualify for more mortgages on a variable rates! This is a shift from the previous policy where more Canadians were having to take fixed rates to qualify for the most.
These new discounts on new mortgages getting taken out there discount is lower off of the bank’s prime rate- this does not apply to an existing mortgage
Did you notice earlier I said the bank’s prime rate, you would think they are all the same… right?
This is not the case. In November of 2016 one Canadian lender broke the trend of their counterparts and raised their internal prime to immediately impact their existing customers by adding to their amortization. This discount below was for new clients they increased the discount so it looked bigger.Lender who broke the trend prime Other lenders prime
3.65% 3.45%
Discount 1.15 Discount ranging from 1.06=.95%
It’s important to note – each lender has unique criteria to be met to get these offers: some only for purchases, some only with switches, some only certain amortizations, and some only certain property types. The list goes on!
Remember your broker shops all these lenders without bias, while protecting your credit score to assist you in finding the best one. It’s important that we evaluate the following criteria with these lenders- here is an example of three lenders:
Lender one
- Bank has a higher Prime than anyone else
- No change to payment
- Increases amortization which can put into effect a trigger clause- cash call in on mortgage or forced pre-payment and other costs such as appraisal at your expense
- Not portable
- Does have a 12 month penalty payback if getting a larger mortgage at new rates! Best one!
- Have to go to branch to lock in and then be subject to their IRD (usually 3-5% of balance pending where you are in your term).
- Based on history this lender is generally the first to raise their rates and last to decrease
Lender two
- Prime rate consistent with all lenders
- Change to payment so amortization doesn’t increase
- NO trigger clause
- Have to go to branch to lock in and face large IRD between 3-5%
- Not portable but will refund you within 6 months if the mortgage is larger and will get rate available at that time
Lender three
- Prime consistent with all lenders
- Change to payment so amortization doesn’t increase
- NO trigger clause
- lender will pay back penalty within 3 months of getting a larger mortgage with them
- your mortgage expert can assist you with lock in
- If you lock in they have the lowest penalties in the country to break your mortgage in the future, generally 1-1.5% of the balance
With seven-in-10 mortgages breaking before the term is over, this should be weighted very carefully.
Let me demonstrate the following:
A mortgage that gets locked in with first or second lender above at $500,000, by the third year the cost to break a mortgage will be between $15,000 and $25,000. With the third lender the cost would be between $5,000 and $7,500.
What to do with this info?
These new wars apply to new mortgages. If you have a mortgage with a discount less than .50, a renewal upcoming, looking at accessing your equity for home renovations or to consolidate debt and you have a variable rate, it may be time to run the numbers to see if taking a new variable rate mortgage is beneficial for you. One of the significant benefits of having a VRM is to get out at any time with only three months interest penalty (unless a restrictive product was taken for a better rate or had a sale only clause).
As you can see we have only scratched the surface in terms of the differences. There are many other differences and mainly you have to consider as a consumer, do you want to be calling a bank branch and play Russian roulette with the education level and sales goals of the person who guides you through deciding what to do with your biggest asset? Or would you rather have a Dominion Lending Centres mortgage professional who is in the front lines proactively guiding you and assessing the economic factors to give you personalized advice based on their experience and knowledge of the mortgage industry.
Depends on what you value most!
Angela CallaAs of January 16, 2017 the provincial government has introduced the B.C. Home Owner Mortgage and Equity Partnership program for First-Time Homebuyers needing help with their down payment.
Eligibility requirements for the new government first-time homebuyer down-payment loan program are:
• Have saved a down payment amount at least equal to the loan amount for which they are applying from government.
• Have been a Canadian citizen or permanent resident for at least five years.
• Have lived in B.C. for at least one year prior to the sale.
• Be a first-time buyer who has not owned an interest in any residential property anywhere in the world at any time.
• The home must have a purchase price of less than $750,000.
• The buyer must already be able to qualify for an insured high-ratio first mortgage for at least 80 per cent of the purchase price.
• The combined gross household income of all people on title must not be more than $150,000.
Applications are open for 3 years starting January 16, 2017 and ending March 31, 2020. For more information check out the link below:
https://housingaction.gov.bc.ca/tile/home-owner-mortgage-and-equity-partnership/