Certain buyers don't understand credit

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A recent study points to the importance of advising clients on the impact credit scores have on attaining a mortgage – especially for millennial home buyers.

The study by CFA, an American non-profit consumer organization, found that participants aged 18-34 know less about how credit is scored and what effects their actions will have on their score.

It’s an issue many brokers face when trying to advise clients on the importance of maintaining their credit score.

“Usually if someone is looking to buy we can take three to four months to repair their credit,” Joe Walsh of Dominion Lending Centres Bedrock Financial told MortgageBrokerNews.ca. “I tell clients they should try not to bring their credit to its limit and to keep it around the mid-mark.

Also, the number of credit items can have an effect as well; they can close some credit if they aren’t using it.”

However, although Walsh has experienced some push-back from clients who are unwilling to work on their own credit, he says younger buyers are often the easiest cases.

“Trying to work with someone who is younger and is just coming into credit is easiest,” he said. “It’s an uphill battle for those who have struggled with it for 15 to 20 years.”

According to the study:
  • Well over four-fifths know that credit card issuers (88%) and mortgage lenders (87%) might use these scores.
  • Well over four-fifths know that missed payments (92%), personal bankruptcy (87%), and high credit card balances (87%) are factors used to calculate credit scores.
  • Nearly three-quarters (72%) know that they have more than one generic credit score.
  • Nearly three-quarters (72%) know that the three main credit bureaus – Experian, Equifax, and TransUnion – collect the information on which credit scores are most frequently based.
  • Nearly three-quarters (72%) know that it is very important to check the accuracy of one’s credit reports at the three credit bureaus.
 
 
  • David O'Gorman on 2014-06-03 11:38:41 AM

    There are two issues here:
    1) Having the credit score that qualifies to get a mortgage.
    2) Maintaining that score from "commitment" until closing.

    In response to Item 1, credit reporting agencies in Canada charge people a fee to get their credit score. So how many people will pay to see their score unless they are aware of a problem?

    In the US there is legislation pending that makes it mandatory for CBs to give consumers access to their credit score without a fee. If so many life decisions ( access to all credit vehicles, many life & property insurers base premiums on credit scores, even jobs) are dependent on credit scores why do Canadian consumers have to pay to access their credit score?

    Item #2 So the home-buyer has a commitment for a mortgage & and firmed up on the purchase of a property. How many mortgage agents/brokers, mortgage lenders, real estate agents say to that couple...you have legally bought a house, you have a mortgage commitment...From now until closing a) pay all your bills on time b) do not buy anything major on credit until after the closing c) do not change jobs, if you don't keep your score the same or better the lender may pull their commitment & not fund the mortgage.
    Based on my experience teaching real estate reps/brokers very few have that discussion.

    Lenders pull mortgage commitments for those very reasons every day.

    For mortgage agents/brokers & real estate reps, nobody gets paid if the deal doesn't close, wouldn't it be in your best interest to have that up-front discussion with your clients? Better still, CYA & put it in your disclosure document as well as have the discussion.

  • JohnB on 2014-06-03 12:12:13 PM

    Credit Bureaus will provide one free report in writing once per year, if you want it instantly then you pay.

  • David O'Gorman on 2014-06-03 12:23:55 PM

    But the free reports in Ontario do not contain a credit score. If you want a score, anytime, you pay for it.

  • kac on 2014-06-03 2:22:13 PM

    the whole system is flawed,the cb's require a fee to tell you what your score is,collections for any reason are simple for a creditor to put on your file and very tough to have rectified,lenders jump on a collection for under $10 as a justification to decline a mortgage even if the person's credit report is flawless other than the collection as does the insurers.It is a daily event to read in the media how canadians are so highly leveraged when the Government has made it impossible for good paying canadians to obtain mortgage funding due to 3rd party income verifications,limited access to funds through mortgage channels and the overall tightening of mortgage lending. Has this helped? i can't see where when it is near impossible for the average person to obtain a mortgage,the monolines and banks blame it on the govt regulators and rule makers however that same person has no problem getting a bank loan,loc,auto loan without any debt servicing or credit requirements and the powers to be don't seem to see any problem with this and it is out of their scope?

    Wow,there is no problem here? Time to go back to the drawing board,get rid of credit scores and get lenders behind a desk that adhere to the 5 c's of credit and understand where the risk really lies.

  • SMT on 2014-06-03 4:23:50 PM

    Wow KAC! You want to go back to the dark ages when FIs trained people to make intelligent decisions based on rational thought, to look at a CB with a critical eye, and there were mistakes made that people learned from, and not base their lending decision on the computer saying the borrowers have the "magic number"?

    You are one radical dude! Thinking on the right wave length.

  • kac on 2014-06-03 4:35:17 PM

    @ SMT a im a little too radical i guess and am dating myself. I remember when i obtained credit bureaus through a type writer instrument and even went as far as weighing risk and reward decisions. Back then we even knew what interalia financing was. We also thought that real estate lending was more secure than unsecured visa's mastercards and line of credits and low and behold our delinquency ratios were always well in hand.

  • M. Robertson on 2014-06-04 12:36:58 PM

    The beacon score is not really any different than the manual credit score of the old days. Back then it was not advertised to the consumer anymore than a beacon is today. If your clients want to have good credit, then they need to be careful and mind the same things that they always have had too. (1) Don’t over borrow (2) Pay your bills on time – two simple things that consumers can do to ensure that they have spot on credit – and a good beacon score. As for collections, that is covered under #2 – and although there may be some rare circumstances where a collection is not valid, in 99% of situations they are. Cell phone collections are an example. You might have a dispute with the cell company, but you signed a credit contract agreeing to terms. As with any other credit facility, it is up to you to adhere to those terms.

    It is also important to remember that “in the old days” credit was harder to obtain. Max LTV for conventional was 75%, Max GDS 32%, Max TDS 40% - with no exceptions. Self employed people had to provide THREE YEARS of company financial statements and Tax returns with their NOA’s to get a mortgage. WAAAAY back when, GDS and TDS calculations were based on income net of tax, that’s right folks, NET OF TAX. CMHC would not insure to 95% on purchases, max was 90% - and they only insured first time homeowners.

    Brokers spend a LOT of time lamenting how difficult it is to get a mortgage, and how much harder they have to work to get a deal done now compared to before. But… isn’t that the WHOLE POINT of a mortgage broker? To do the work so the client doesn’t have to? To be a solution when the customer does not fit in the box? To provide consumers with education? Or am I missing something? If the broker doesn’t want to do the work, then… why would a consumer deal with one?

    They can’t get a better rate anymore, and in most instances it is actually faster and easier to just walk into the bank you have been dealing with for 10 years. Banks don’t hire people who do not have university educations these days, so although not specifically trained as in depth as a mortgage broker, the mortgage specialists that work at a bank are not stupid people. Also, given how many companies (including brokerages) that brag when they get a high producing bank specialist - - well if they are good enough to recruit to be independent brokers, they can’t be as ignorant as people always claim, now can they?

    This beacon article is just another instance of brokers finding excuses for why they can’t do their jobs. It is easier to complain than to roll up our sleeves and get the job done. In the end however, if you want to be successful and stay in the business… you have to suck it up and do the work.

  • kac on 2014-06-04 2:25:21 PM

    M.Robertson, i believe my rant was more to do with the amount of unsecured credit people can still get there hands versus the secured credit which seems so hard to get at but i guess it hit a sore note? not sure what you do but possibly you have heard your share of complaints and feel a little fragile?

  • SMT on 2014-06-04 3:52:55 PM

    To M. Robertson

    Slowdown cowboy! You are going down a lot of dead end trails.

    Beacon/FICO is a whole lot different than manual credit scoring. Manual scoring was company specific. It was not the
    end-all-and be-all in the decision making process. Their was significant common sense used. More specifically the word "equity" meant something.The credit score was not bought by insurance companies that base your car & home insurance premiums on the score. The insurance companies use "fuzzy logic", your score is low because you have limited available credit, therefore you can not buy snow tires, therefore you are more likely to be in a car accident!( no place on the app to tell them your snow tires are in the garage waiting for next winter).

    As an aside have you any idea how significant a change of address knocks down YOUR credit score? Most consumers don't either.

    O'Gorman's comment about the fact that ALL Canadians have to pay to have access to THEIR own credit score, and that score is proprietary to
    a private, for profit company seems to be lost in your discussion.

    As to this discussion as an excuse by brokers to not do their job? Your "fuzzy logic"?

    Who piddled in your porridge, cowboy?

  • M. Robertson on 2014-06-05 2:54:10 PM

    I have never heard of an insurance company basing premiums on credit score. I checked with a couple and they have all told me that they do not do that.

    As for it being "their" credit score... technically is not theirs. The credit report is a reflection of a consumers willingness to repay debt, debt that is the legal property of the credit grantor. The credit report is derived from information provided to a reporting agency by those debt owners, namely the lender of said debt.

    There is a reason why a credit report obtained by a lender and/or broker looks different than what the consumer sees. Because some of the information presented the consumer is not privy too.

    People forget that a credit report is full of information which is reported by, and owned by, the reporting company. They pay money to report information to a credit bureau, information on how an individual repays debt that is owned by the lender.

    I get protecting the consumer, but people all too often forget that when you borrow money - you are borrowing someone else's money - that means that they own the debt, not you.

    The same applies to a mortgage - people all think that they own the property, the fact is that until that property is free and clear of all debt, you do not own it. The lender does.

    Also, for the record, in Canada you do not actually "own" the property - you own title to the property. It is why governments can expropriate land and force you to move.

  • SMT on 2014-06-05 8:49:50 PM




    To M.Robertson
    A little knowledge is a very dangerous thing & you sir/madam have very little knowledge. You also sound like a shill for the credit reporting industry

    See three websites that discuss the insurance companies use of credit scores 1) the organization of insurance regulators 2) a major Canadian law firm 3) the CBC. If you want a whole lot more references just try googling "Insurance companies use of credit scores"

    http://ccir-ccrra.org/en/init/credit_scor/Credit_Scoring_Findings_Report_EN.pdf

    http://www.mcmillan.ca/Ban-on-using-credit-scores-for-insurance-widens-and-deepens
    to M.Robertson
    http://www.cbc.ca/news/credit-scores-can-hike-home-insurance-rates-1.890442
    http://www.cbc.ca/news/credit-scores-http://ccir-ccrra.org/en/init/credit_scor/Credit_Scoring_Findings_Report_EN.pdf

    http://www.mcmillan.ca/Ban-on-using-credit-scores-for-insurance-widens-and-deepens

    http://www.cbc.ca/news/credit-scores-can-hike-home-insurance-rates-1.890442
    http://www.cbc.ca/news/credit-scores-can-hike-home-insurance-rates-1.890442-hike-home-insurance-rates-1.890442

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