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24 Apr

Credit Reports and You: Pedestrian Mortgage Advice for Novices, or Old Hats Who Secretly Don’t Know Sh*t

General

Publié par: Kristen Vettraino

“I think my credit should be good” “Actually, you have no credit.” “But I paid off all my cards and closed them.” “Uhuh.” – Actual conversation had by 80% of mortgage agents.

I’m trying not to start this with “you gotta have money to make money” but the urge is too strong. It’s true though and we all know it.

It’s the same with credit: you have to have it to get it.

Wait, wait. “Why do I need ID to get ID? If I had ID I wouldn’t need ID.” That’s better.

Same same.

The institution financing your mortgage doesn’t know you. Your credit report is your ID. Obviously having bad credit is bad. People who have bad credit usually know it. (Are your credit cards maxed? Do you neglect to pay the minimums every month? Do you forget to pay altogether? Is someone calling you to collect? Did you have a fight with Telus 3 years ago and you moved and you figured they gave up?) But also having no credit is bad. There’s no reference to your awesome handling of the monies.

If you don’t have any reported history of you making payments on time, of you being able to manage debt responsibly, then how is the institution potentially lending you 100s of thousands of dollars supposed to know if you’ll be good for it?

There are dozens of lenders of mortgage financing and most have multiple products which means generally a good mortgage agent can find a solution to a problem. That is to say, if you know you have bad or no credit, we can often make up for it in other ways and you could still get financing. Will you get the super lowest rates? Likely not. You’re considered a bigger risk so you have to pay more. Sometimes there are fees as well and sometimes they can be a lot.
So what can you do now to ensure you’re in the best position when it’s time for you to buy a home?
 

YOU HAVE TO TAKE SOME MONEY AND YOU HAVE TO PAY IT BACK.

Here are some tips for repairing or generating credit so that you look good on paper.

These are especially important for buyers putting down less than 20% for their down payment.
 
 

1. Two trade lines AT LEAST. I recommend a credit card and a line of credit. Most likely your bank is salivating to get you into these products. If they aren’t, I can help. An RSP loan is good too. (Fun fact: I recently got an exception for clients who had only one trade line each but we were able to show 12 months bank statements of rent coming out and they were still qualified as AAA and got the best rate. So, exceptions can be made in the right circumstance.)

2. Total amount of available credit should be no less than $2,500. 

3. Use your credit. Every month I use my credit card and then I pay it all off with my line of credit. I make payments toward my line of credit immediately afterward but if I chose to keep a balance on it at least the interest rate is much lower than my credit card.
So now I’m actively drawing from two trade lines and paying them back every month.
 

4. Don’t skip payments and don’t be late. We all know when we get paid, right? Find out when your bills are due and set a reminder on your phone. Then make your online transfers while you’re watching the Unbreakable Kimmy Schmidt.

5. Do not max out your credit. It reflects badly if your balances are all very close to or at or over your limits. STAY BELOW 75% OF YOUR LIMITS. (If you have a $10,000 line of credit, don’t use more than $7,500.)

 
6. Do this for two years and then keep doing it. “A” lenders like to see a two year history and they’re the ones you really want to impress.
 
Good luck friends!