#10 Decline - Low Credit Score

I estimate that 80% of all Canadians have no idea what their credit score is. Some say ignorance is bliss. For the most part, that is probably true. But bliss often comes to a halt when you apply for a loan a mortgage and are declined by your bank. The loan officer can usually only tell you that the decline is due to "insufficient credit" or something similar. You might ask for details, but since teh loan officer doesn't actually see your credit report, they can't help you. It's a frustrating experience. Since banks have created such a high level of trust, you might just accept your fate and go home without an approval.

If you had applied with a mortgage broker instead, the broker could get a copy of your credit report and review it with you in detail. Often there are errors or old information still reporting on the bureau.

Here in Canada, Credit Scores range from 300 to 900. The higher the score, the better. Most Canadians have a score in the 625 to 700 range. Generally speaking, any score over 680 is considered "excellent". The score itself is calculated using proprietory credit scoring calculations. These calculations are based on different sections of the credit bureau.

These sections include your address history. The more frequently you move, the less stable you are, and that has a negative effect on your score. The next section is you credit inquiries. Each time you do a credit application a credit inquiry appears on your credit report. Each inquiry can drop your score by 5-10 points. The more you "shop around" the worse you credit score gets. One of teh benefits of dealing with a mortgage broker is that the broker can request one bureau and then send that one credit bureau to each lender electronically, so that each lender does not request an additional credit bureau.

The last section of the credit bureau report is your Trade Lines. Trade Lines are your credit cards and loans. The score is calculated based on how long the trade line has been open and how well it has been repaid. However, about 30% of the score is based on your Credit Utilization. That simply means, how much is the difference between your credit balance and your credit limit. The closer you are to your credit limit, the worse you score. Since Credit Bureaus and Credit Scores are a snapshot in time about 1-2 months ago, often it is just a matter of waiting for the credit bureau to report new credit balances. Or, if you have not paid down your debts, you could try make a large payment(s) and then wait for the credit bureau to get updated in 1-2 months.

If there are errors or incorrect information on your credit bureau you will never know unless you sit down with an experienced mortgage broker or get a copy of your credit report for yourself.

If you have been declined by your bank, please give us a call and we can review your credit repoert with you and give you the advice you need to get your credit report into a position where you will qualify for a mortgage.