About a year ago a reader in Alberta sent me a message lamenting his poor credit score, and asking what he and his fiancee would have to do to qualify for a mortgage. Their desire was to own a home within a year. He wrote as follows:
“Hello Ross, I need your help on credit building, I think everyone’s situation is unique, in my case I have paid all collections but one with $2,000 left, built up some $8,000 in savings, have 16 up to date payments with my Capital One MasterCard, and my Equifax score is 609. But Transunion just went down from 576 to 549. I only have one credit card I am using to build credit, is that enough? We are planning on buying a house early next year.”
I wrote back with some advice…
Thank you for writing to me. Here is some feedback to your situation:
1) Check to make sure the important stuff on TUC is the same as on Equifax – i.e. only one o/s collection, status of Capital One accurate, your personal info etc. If it is, don’t worry about the scores being different – scores are often different between both bureaus and also between the one you get and the one I access when I pull your credit (with your consent only) for a mortgage application.
2) The outstanding $2,000 collection is dragging your score down and hurting your prospects – I would settle that sooner, rather than later. You can pay it in full or you can try to negotiate if you feel you can give the creditor good reason to do so.
3) You don’t say the limit of your C1 card – if it is less than $2,500, it’s probably not enough unless the rest of your application is very strong (employment, income etc.) I would recommend you arrange a second card – a Canadian Tire MasterCard would help, or possibly a card from your current bank (assuming you have no negative history with them)
I would not apply for a second card until you have settled your collection, and the fact it has settled is reflected in your Equifax report. (Otherwise you will probably be summarily declined)
4) You don’t give me any historical background – i.e. are you a former bankrupt or consumer proposal, what your report actually looks like etc., so until I see your report and know some more info, I cannot say how strong your chances of a mortgage will be in the New Year – it becomes case specific.
Please understand it is not just the numerical score of your credit report that determines your mortgage worthiness, but what is actually in the report and why it is there that also matters. So if you would like to send me a copy of your two reports, I will give you more feedback.”
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We stayed in touch over the next several months. Chris sent me their credit reports and I reviewed them and gave specific advice tailored to their circumstances. It turned out his fiancée Darlene also had problems with her credit history, and we addressed those too.
I wrote as follows:
“Your fiancée is coming up for two years’ credit history – which is very good. Two things are hurting her score and your collective ability to get a mortgage.
1) There is an unpaid collection of $260 – this should be settled and the report updated to reflect that (This is the number one reason why her score is not 750+)
2) She does not have enough credit – She should ask the bank where she deposits her pay for a credit card – normally they would say yes right away – they may balk because of the unpaid collection – if I were her I would take a copy of this report into the branch, apply at branch level, and show/tell the adviser that the collection has been paid so they can attach a note to the application they submit for her. Which means, settle the collection first.”
During the summer, Chris wrote back to me and gave me an update:
“Hello Ross, I took your advice, got a second card with CIBC and was approved for $500, I paid off the collections and trying to stay on top of things now. I have $20,000 saved between me and my fiancée. I hope something can pan out.”
And finally today Chris wrote to tell me they have bought a new home and they’re mortgage was readily approved. Job done!
So you see, all it takes is a commitment to improve, and to follow the necessary steps.
A year ago, Chris and Darlene had no chance of a mortgage because of their credit histories and because they had not dedicated enough effort to saving for a down payment and closing costs. One year later, they are happy homeowners!
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