House Rich, Cash Rich: You Can Have it All - Part 2
Eric Putnam
Burlington Post
August 2009
Dreaming of your own home? By doing a few smart things now, you can be house rich and cash rich.
Part 2: Before Seeking Mortgage, Seek out your Credit profile
When Ali went comparison shopping for a mortgage, he was disappointed to find that he was not receiving quotes at the low interest rates he expected. What he didn’t realize was that lenders were reviewing his credit profile to determine the interest rate to charge him.
Checking your credit profile and ensuring that it is accurate and attractive to mortgage lenders can make a major difference in the amount of mortgage you receive and the interest rate you pay.
Your credit profile includes information regarding the amount and types of credit you have, the length of time you have had these accounts, and your track record in paying bills. Canada’s major credit reporting agencies – Equifax Canada (www.equifax.ca) and TransUnion Canada (www.transunion.ca) – collect this information for every consumer who uses credit, and documents this in the form of credit scores and reports.
The agencies then sell this information to their business members -- banks, credit unions, credit card companies, employers and insurance companies – who use it to determine the credit worthiness of borrowers.
Your credit profile at each agency will have slightly different information, so before applying for a mortgage, check with both agencies. You are entitled to receive one free copy of your credit report from every agency every year. If you mail a request to the credit reporting agencies, you can receive your report for free. This does not, however, include your credit score. For that you will have to pay a fee of about $25.
Your credit score is a rating of your creditworthiness. Credit reporting agencies and lenders rate credit on a scale from 300 to 900; the higher your score, the lower the risk you represent, the more money you can borrow and the lower the interest rate you will pay. Depending upon your credit score, the rate you pay can vary by as much as 4%% above or below published mortgage interest rates.
While every lender has a different scoring system, if your score is above 720, generally you are considered to be an excellent credit risk. Average scores tend to be in the range of 675-700. Below that you may have to borrow less money or pay more interest or you may even have difficulty securing a mortgage. To qualify for mortgage insurance, you need a minimum credit score of 600.
Therefore when you receive your credit reports, check them for accuracy. Information could be outdated or incorrect. If you have a common name, your report could even include credit that may belong to another person. If you find errors, contact the agency and ask how you can have these corrected.
Once your credit profile is accurate and up-to-date, you can increase your chances of getting the home of your dreams by securing a pre-approved mortgage. In the next article, we’ll tell you why this is important and how to go about it.
If you don’t have a credit history or your credit score isn’t high enough to secure a mortgage, upcoming articles will explain how to build a strong credit track record.
Eric Putnam is a senior advisor with BDO New Beginnings (www.bdonewbeginnings.ca) and Joyce Brown is a counsellor with BDO Dunwoody Limited (www.debtworries.ca). Both help individuals resolve their financial problems. You can reach Eric at 1 (866) 926-4700 or eputnam@bdo.ca and Joyce at (905) 524-1008 or jbrown@bdo.ca.
