Understanding Your Credit Report

Credit is a concept that is becoming very important in the average person’s day-to-day life. Without a good credit score, you are unable to take advantage of the many great financial features our society provides. This includes credit cards, car loans, mortgages, and even lines of credit. Your credit score can even limit you from renting a home or opening a bank account. For this reason, it is necessary to understand your credit report.

When you borrow money or repay money, the lender reports the necessary information to one of the two reporting agencies. Your credit report can be obtained from Equifax or TransUnion. In the mortgage industry, Equifax is typically used. Before applying for a mortgage, it is recommended you view your credit report by ordering a copy from the credit reporting agencies. It is very important you keep your file up to date, as you can update any information or fix any errors free of charge by following the instructions on their respective websites.

You can view a very in-depth description of how to understand your credit report by Clicking Here and viewing the respective page on the Financial Consumer Agency of Canada’s website.

A short description of the features on your credit report is as follows:

Reviewing The Credit Report

Identification information: Previous and current addresses, SIN number, date of birth, spousal information
Inquires: Shows the inquires that people have made to view your credit report
Employment: Previous and current employers
Credit Score: A single number that represents your likelihood to repay a loan. The number varies from 300 to 900, where 900 is the highest and most favourable.
Public Records and Trade Information: Bankruptcies, collections, other loans, judgements, credit account history

Understanding Credit Ratings

Generally, your report will feature a number beside a letter under the credit account history. For Equifax the letters are:

O: Open account
R: Revolving or option account
I: Instalment account
R: Line of credit
M: Mortgage account

For TransUnion the letters are:

O: Open account
R: Revolving or option account
I: Instalment account
C: Line of credit
M: Mortgage account

The numbers for both agencies are generally the same and vary from 0-9. The number 0 means the file is too new to rate, and generally the lower the number the quicker you were to repay. The number 9 represents collection and is “bad” debt.

Understanding The Credit Score

The credit score is based on a few criteria as follows:

1) Payment History: Whether the payment was on time or not
2) Amounts Owed: The amount owed to the total credit limit with various lenders
3) Length Of Credit History: How long the accounts have been open for
4) New Credit: How often you are looking for new credit, and how you handle the newly opened accounts
5) Types Of Credit Used: The types and amount of credit you have

Professional Advice

Although credit is important when it comes to applying for a mortgage, we have solutions if you have less-than-perfect credit. We have alternative lenders that will still accept the application using other criteria. The interest in these situations tends to be a bit higher than the best available rate. However, we provide such borrowers with a strict plan and strategy on how to improve their credit and renew the mortgage with the best available rate. Are you looking to buy a home and are not too sure how your credit might or might not limit you? Give us a call beforehand for a free consultation of your scenario.
 

For a more in-depth and professional review of your individual and personalized situation please give Harpreet Singh The Mortgage King a call at (416) 795-1919.

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