Improving your credit score isn’t as hard as you think!

General Alan J. Nicholas 30 Jan

If you’re credit challenged but want to get into the housing market, it can be a tough road. But improving your credit to a point where a lender will give you a chance, is very doable.

Basically, what you need to know is a score above 680 puts you in a good position to get financing, while below will make it tough and improvement is needed.

Your credit score tells lenders some basic stuff about your credit: How long you’ve had credit, your ability to pay back that credit and how much you owe. And so your credit score is affected by how much debt you’re carrying in regards to limit, how many cards or tradelines you have and your history of repayment. If you’re a young person and new to the world of credit, consider the 2-2-2 rule to help build up your credit. Lenders want to see two forms or revolving credit, like credit cards, with limits no less than $2,000 and a clean history of payment for two years. It’s also good to note, a great credit score will also include keeping a balance on all those cards at any given time below 30 per cent of the limit.

To ensure your score stays in playoff form, make sure to pay off any collections, like parking tickets, and correct any old or incorrect reporting on your credit score by contacting Equifax to have it removed.

Some people also forget their credit cards have an annual fee and fail to pay them off too. This cannot

be stressed enough, if you want to keep or attain a good credit score, you have to pay your credit cards or tradelines on time regardless of whether you owe $1 or $1 million.

Debt and credit often go hand-in-hand. There is also such a thing as good debt and of course bad debt. Good debt consists of things like a mortgage, investment property, and college/university tuition. Bad debt includes, retail store credit cards, cars, and vacations. There is a tendency when things get really bad to consider declaring bankruptcy or a consumer proposal. A consumer proposal is a formal, legally binding process to pay creditors a percentage of what is owed to them. You really want to avoid these two options. Instead, there are companies out there that will perform the same function and negotiate your debts, but it won’t impact your credit or carry the stigma of bankruptcy or a consumer proposal.

Lastly, if you already own a home and have some equity, but you’re still drowning in credit debt, consider refinancing your mortgage. Sure, you might not get the great rate you have now or you might get dinged for breaking your mortgage early, but using the equity in your home to get rid of high interest credit payments could keep more money in your pocket at the end of the day. To change your debt-to-income ratio, consider stopping all credit card activity and don’t rack up any additional borrowing.

Breaking up with your mortgage can be hard to do

General Alan J. Nicholas 13 Jan

It’s hard to look past what’s right in front of you. That can be said for a lot of things in life, including a mortgage.

So it should come as no surprise that roughly six-in-10 homeowners with the standard five-year fixed rate mortgage break their terms within three years. And as brokers, we’ve heard all of the reasons. Some are good and some are less fortunate. There are those who want to leverage recent large increased in property value for investment terms, or they want to get some equity out of their home to do some renovations. In other cases, it can be life events like divorce, new relationship, the kids going off to college, or just paying down some built up credit card or consumer debt. Some people are lucky enough to be in a position to pay off the mortgage early.

In fact, if you’re reading this and have had a mortgage long enough, one of the things listed above has probably come into your life. But they all come at a cost. So as you sit down to either renew or get a new mortgage, take some time to think about the future. Not five months ahead, but five, seven or even 10 years ahead.

If you’re really not sure what the future that far away is going to look like, you need to consider some options before you sign on the dotted line. It could save you money.

If you’re a fixed-rate person, it’s important to understand how your lender is going to calculate the penalty when you break the mortgage.

Big banks calculate penalties based on the discount they gave you off of their posted rates at the time you first got your mortgage. They take their new posted rate for the amount of time you have left in your mortgage (3-years, 4-years etc.), apply the same Discount they first gave you and then calculate how much interest they would lose as the difference between the two for the rest of the term calculated on your current balance. That is your penalty and it can be quite hefty.

But other lenders like credit unions will use the interest rate differential or three month interest penalty.

What can you do? You could sign on for a fixed-year rate for a shorter term, like three years. That just obviously shortens the length of the mortgage. Or you can also consider a variable rate since the penalties to break the term are much lower.

While it may be tempting to just stick with the big bank, you’ll want to talk to a mortgage broker first. Mortgage brokers have access to all kinds of lenders from credit unions to monolines (a monoline is considered a company specializing in a single type of financial service, like a mortgage) which can arrange better terms if you do need to cut your mortgage early.