Credit Rating, Your Credit Score, Your Credit Is Important!
If you don’t have a reporting credit score, fear not, keep reading
Credit – and I cannot say this enough – is not only an integral part of the mortgage process, but it is important in many aspects of your financial picture. If you do not have an established credit rating, like a client who I spoke with just the other week, it does not matter how many assets you have, and how strong of a net worth you have, most banks will tell you they cannot help you obtain a mortgage. This particular client told me that she walked into her bank seeking a mortgage pre-approval for the purchase of her first home and her bank said to her that they were very sorry that they could not help her because she did not have a credit score. She could still not understand how she could not have any credit, despite having a lot of assets and cash in the bank. The fact of the matter is, that assets do not get reported on your credit bureau. Hence, it does not matter if you have $10 million in the bank. The credit bureau and your credit rating is about about just that: your credit. What they want to see specifically, when they run your credit rating is how you manage your monthly obligations. Your credit card payments, car loan payments, mortgage payments, gas card payments for instance…without missing any of them….without falling into arrears or getting the debt written off. So, if you have been paying cash your whole life for your cars, big ticket item purchases and the like – although I think this is great- that you have not had to borrow to live most of your life, unfortunately, this is not so great when it comes to the time that you actually need to borrow for something like a mortgage because you do not have an established track record…no proof if you will, to demonstrate that you have the capacity to make payments or to manage any level of debt at all – even though of course you have demonstrated the ability to manage your savings at a much superior rate than your average fellow Canadians. So, is there a way out of this pitfall? What can you do to build or establish your credit rating? The first step would be to go out and get a credit card. If you’ve got good assets and you’ve been paying everything with cash then your credit score will, in all likelihood be nil. Most likely you have a good relationship with your bank, and they will very likely be able to get you a credit card. So, apply for their Visa or master card. Start with that. You want to obtain a credit limit of at least $1,000. Ideally you want to have a limit of over $5,000 because when the credit lenders look at you, especially when you are applying for a mortgage, they want to make sure that you can handle a payment that is higher than $50 per month. Do you have to use it all the time? Not necessarily. Use it from time to time, make sure you pay it off, even before the bill is due. You can also try to apply with Canadian Tire, and Bank of Montreal. At the time of this writing, those two types of credit cards are said to be the most common credit cards that people looking to establish themselves are approved for. If you’re looking to build and establish your credit rating start with one card. You might want to get a couple and this is not a bad idea, but remember. Don’t go crazy. Usually more is better, but in this case 10 of them is not better than three or four and it simply increases the chances that you may forget one of them, and maybe miss a payment, which will have an adverse affect on establishing your credit rating. Establish that score, get going on it today, do not delay any further. Use the credit wisely and then after some time, in many cases between six month and one year of established credit, with on time payments being reported and a positive history, we should be able to qualify you for a mortgage to get into that house of your dreams! If you need any help with this or if your bank is telling you you can’t get a Visa even though you’re offering to put your own money up as security I have a solution for you so please feel free to give me a call.