Huge credit score increase results in mortgage miracle

Your credit score always matters — even when you are applying for a mortgage with an alternative lender or a private mortgage lender. It’s true they specialize in helping borrowers with damaged credit, but they still want to see signs of rehabilitation and repayment performance in the applicant’s track record. And the higher your score, the more favourable the terms of your mortgage will be. Which is what everybody wants!

Justin came to us last month looking to refinance his home in order to pay for a major renovation project as well as his daughter’s post secondary education. Not an uncommon (double whammy) situation to find yourself in.

Less than one year ago, Justin had asked us to help pay off his consumer proposal a few years ahead of schedule. We arranged a private second mortgage and cleaned everything up. We also suggested two credit cards he would be approved for, which he dutifully applied for, following our advice to the letter.

But when we checked his Equifax credit score while building the current application, we were all disheartened to see his score was only 497.

(Scores range from 300 to 900–with most people falling in the range of 600 to 750)

A score of 497 was going to kill the application. Assuming we found a lender who would work with Justin, we could be sure of three things:

  • The maximum loan amount would only be 65% of the current appraised value of his home.
  • The interest rate would be very high, as his score is so low — likely in the range of 5.19% to 5.99%
  • Lender, brokerage and legal fees would be quite high.

The prospect of a low loan amount would render this dead in the water, and most certainly not help Justin foot the bill for his reno or the tuition. It was time to get busy!

 

 

I looked over his credit report and noticed a number of errors; things that were just plain wrong and not consistent with the facts. I offered to clean this up by assembling a package for Equifax and presenting it to them in such a way they would readily agree with our analysis, and update his report accordingly.

The types of errors on Justin’s report were:

  • The fact that he had completed his consumer proposal in late 2016 was not being reported. (kind of huge!)
  • Several of the credit facilities included in his proposal were still reporting balances owing.
  • Some of the credit facilities were reporting late payments on dates AFTER he filed his consumer proposal. This is simply not possible. Once you file a consumer proposal, you gain immediate protection from your creditors and they may not continue collection and payment processes.
  • Some facilities said “bad debt, collection account, or unable to locate”. Again – not true — he was never hard to locate and the debt was included in a consumer proposal.
  • He had three credit cards from one bank which read “assigned to third party for collection”. This was an error on the bank’s part — they had assigned the debts to a collection agency AFTER the proposal was filed — a no-no!

We have direct and instant access to the folks at Equifax who were extremely good and efficient at correcting everything we pointed out. Within three days of sending the package, we were able to pull Justin’s credit report and his score had jumped to 686 from 497!!!

That’s an increase of 189 points 😊

Please realize it is unlikely Equifax themselves have made the errors — they rely on their clients — the card issuers, to report the facts to them, and they accept this info at face value until or unless it is challenged by the consumer.

Anyway, back to Justin’s situation. This simple but crucial step in the mortgage application process meant that we were going to be able to do exactly what he needed.

  • We got an approval from B2B Bank for a two year mortgage at only 4.14% with a 30 year amortization
  • The loan amount was 80% of the current appraised value
  • There was not even a one time lender fee

The moral of the story is once again… the importance of managing your personal credit history with some vigilance. I cannot stress this enough. If things seem wrong to you, they can be corrected.

And I can tell you from helping hundreds of borrowers who previously filed a consumer proposal or personal bankruptcy, chances are there ARE errors in your credit history right now.

A simple peek under the hood could mean a pretty huge bump for your credit score, just like Justin, and the next mortgage miracle might be yours.

Related article: Paying Consumer Proposal Early Pays BIG time

Related article: You Must Review Your Credit Score Before A Mortgage

 
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