Published: October 8, 2015 • Last updated: January 6, 2021 at 7:40 am
Janet bought her first house with me last month, despite having no credit score whatsoever! She has a decent income, but after some bad debts which were racked up by an ex-boyfriend several years ago, she never bothered to rebuild her credit history. Gun shy.
This means that when she did finally buy a house, most mortgage lenders were not interested in helping her. Certainly not one who insures their mortgages with CMHC, Genworth, or Canada Guaranty.
XCEED Mortgages came through, offering one, two or three year mortgages at reasonable rates, considering Janet’s circumstances. Janet could have chosen a one year term at 4.09%, or a two-year term at 4.24%, but Janet chose a three-year term, at 4.44%.
She wanted to give herself plenty of time to build an excellent credit history (from scratch) before applying to an “A lender” in the future. The difference in monthly payments is not nearly as much as you might think. A $300,000 mortgage has a monthly payment of $1,502; compared to $1,213 for a 2.69% mortgage.
What can you do to improve your mortgage application for an “A Lender”?
Meanwhile, we had work to do. Janet had to track down all the collection agencies and lenders who maintain she owes them money, and deal with them all individually. In most cases, there was, in fact, no remaining debt; she had settled the matter years ago, but no one had bothered to update her credit report for her. This underscores the importance of checking your personal credit history from time to time and correcting errors as soon as you find them.
When the current mortgage matures, she should be able to switch over to an ” A lender” (lower rates and no fees) if she re-establishes her credit. I suggested a simple approach…
- Send along to Equifax Canada and Trans Union Canada any letters from former creditors and proof of payment for all the outstanding items in Janet’s current credit history – clean those off.
- Apply for a secured visa card – I suggest a limit of at least $1,500, secured by her own money.
- About six months after she gets the HomeTrust Secured Visa card, ask her bank for a credit card too – good chance they will give her one unsecured at that time, but if not, then offer up another security deposit to them – two cards, at a minimum, are required for a future mortgage.
- Make sure the cards are used and exercised every month – and paid in full at least twice a month; don’t wait for the statement to come to make online payments.
- Don’t apply for other credit products, unless really necessary, such as a car lease or loan.
I expect within six months Janet will have a credit score already in the 600’s, and within two to three years her score will be comfortably over 700 – which should be plenty for most “A lenders”.
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One of Toronto/GTA's Most Trusted and Knowledgable Mortgage Agents
Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.
With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.
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