Advice for credit challenged clients
In today's economic climate of tighter credit requirements and increased unemployment rates
taking their toll on some Canadians, there's no doubt that many people may not fit into the
traditional banks' financing boxes as easily as they may have just a year ago.
Your best solution is to consult your mortgage professional to determine whether your situation
can be quickly repaired or if you face a longer road to credit recovery. Either way, there are
solutions to every problem.
Mortgage professionals who are experts in the credit repair niche can help credit challenged
clients improve their situations via a number of routes. And if the situation is beyond the
expertise of a mortgage professional, they can help you get in touch with other professionals,
including credit counsellors and bankruptcy trustees.
If you have some equity built up in your home and still have a manageable credit score, for
instance, you can often refinance your mortgage and use that money to pay off high-interest
credit card debt. By clearing up this debt, you are freeing up more cash flow each month.
In the current lending environment, with interest rates at an all-time low, now is an ideal time for
you to refinance your mortgage and possibly save thousands of dollars per year, enabling you to
pay more money per month towards the principal on your mortgage as opposed to the interest
which, in turn, can help build equity quicker.
Following are five steps you can use to help attain a speedy credit score boost:
1) Pay down credit cards. The number one way to increase your credit score is to pay down
your credit cards so you're only using 30% of your limits. Revolving credit like credit cards
seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.
2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly
instalments can hurt your credit score. If there is a balance at the end of the month, this affects
your score credit formulas don't take into account the fact that you may have paid the balance
off the next month.
3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a
significant impact on how other lenders may view your file. Ensure everything's up to date as
old bills that have been paid can come back to haunt you.
Some financial institutions don't even report your maximum limits. As such, the credit bureau is
left to only use the balance that's on hand. The problem is, if you consistently charge the same
amount each month say $1,000 to $1,500 it may appear to the credit-scoring agencies that
you're regularly maxing out your cards.
The best bet is to pay your balances down or off before your statement periods close.
4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers
may stop updating your accounts. As such, the cards can lose their weight in the credit formula
and, therefore, may not be as valuable even though you have had the cards for a long time. You
should use these cards periodically and then pay them off.
5) Don't let mistakes build up. You should always dispute any mistakes or situations that may
harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it,
you can dispute this by making the credit bureau aware of the situation.
If, however, you have repeatedly missed payments on your credit cards, you may not be in a
situation where refinancing or quickly boosting your credit score will be possible. Depending on
the severity of your situation and the reasons behind the delinquencies, including job loss,
divorce, illness, and so on your Dominion Lending Centres mortgage professional can help you
address the concerns through a variety of means and even refer you to other professionals to help
get your credit situation in check.
Advice for credit challenged clients
By: Marc Lalonde
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