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 per cent 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 cellphone 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 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.
Dean Bala is a mortgage broker and Realtor working out of the Creston Valley Realty office in Creston. For more information, he can be reached at 250 402-3903 or firstname.lastname@example.org.