Friday, May 29, 2009

Becoming a Strong Borrower

Lets face it, having bad credit WILL affect your credit score and reduce your ability to obtain credit cards, car loans, personal loans and mortgages. There are some easy ways to ensure that you are a strong borrower when you go to apply for any of these and these methods don’t require you to have a lot of money either.

Your credit history is recorded along with millions of others by at least one of the two major credit reporting agencies in Canada; TransUnion and Equifax.

Your Credit Report contains personal information including your name, date of birth, current and previous addresses, Social Insurance Number and current and previous employers.

It also contains your credit history which includes information about all your credit cards and loans as well as any bank accounts you have.

In addition, you will find that any bad debts – items which were referred to a collection agency – along with bankruptcies also show up on the report.

The credit report will show inquiries made on the credit report. So if you have applied for 5 credit cards and 2 lines of credit in the past year then those inquiries will appear.

Your Credit Score is like a snapshot of your financial health. It is an indication of the risk you pose to a lender who is deciding whether or not to lend you money. TransUnion and Equifax use a point scale of 300 to 900 to report your score and the higher your score on this scale the lower your risk to the lender.

As it applies to mortgages, your Credit Score will play a determining role in what interest rates you qualify for and the general ease at which you can obtain a mortgage.



Here is a list from the Financial Consumer Agency of Canada (FCAC) on improving your credit score:

Always pay your bills on time. Although the payment of your utility bills, such as phone, cable and electricity, is not recorded in your credit report, some cell phone companies may report late payments to the credit-reporting agencies, which could affect your score.

Try to pay your bills in full by the due date. If you aren't able to do this, pay at least the required minimum amount shown on your monthly credit card statement.

Try to pay your debts as quickly as possible.
Don't go over the credit limit on your credit card. Try to keep your balance well below the limit.

The higher your balance, the more impact it has on your credit score.

Reduce the number of credit applications you make. If too many potential lenders ask about your credit in a short period of time, this may have a negative effect on your score. However, your score does not change when you ask for information about your own credit report.

Make sure you have a credit history. You may have a low score because you do not have a record of owing money and paying it back. You can build a credit history by using a credit card. See the next section to find out how.

You can go onto either of the Credit Bureaus Websites and actually download your credit report. This is something you should do periodically to ensure that everything is being reported accurately and to pick up on any inaccuracies that may be evidence of identity theft.

If your credit rating is hindering you from obtaining loans then feel free to contact me to discuss available options.

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