If you are maxing out your credit cards and ignoring your bills, you might want to consider the effect it’s going to have on your credit score. Credit card payments and the level of debt, have the biggest impact on your credit score. Mess up in these areas and your credit score will drop drastically.
What is Considered ‘Bad Credit’?
The term “bad credit” is assigned to an individual when that individual fails to meet their payment obligations (i.e. defaults on a loan from a lender). When an individual defaults on a loan, this unfavourable credit information appears on the individual’s credit history for 6 to 10 years depending on the type of default. A lender will want to look at the credit history of a borrower to see the credit risk involved before they agree to lend any funds to the potential borrower. The lender is looking for assurance that the money they lend out will be repaid on time, as agreed upon.
How Are Credit Scores Calculated?
In Canada, a company called Fair Isaac Company or FICO calculates credit scores based on an individual’s past credit and debt repayment history. Credit scores range from 300 to 900, with the higher end of the scale indicating a more favourable credit risk. There are three major credit reporting bureaus used by banks and mortgage brokerage firms that offer mortgages and loans in Canada and they are Equifax, TransUnion, and Experian. Your credit score is affected by your payment history for the various loans and debts that you have taken on. Credit reporting companies collect and compute the data from various lending institutions that you have dealt with to assess your debt repayment history and assign you a credit score. Most banks will shy away from lending you money if your credit score is 600 or lower.
What Does Having ‘Bad Credit’ Mean?
The lower a person’s credit score is, the more of a risk that person is considered to be by a lender. Therefore, it is likely that people with bad credit will have to borrow money at higher interest rates. In the past, the choice of lenders for mortgages was generally restricted to the major banks or financial institutions. In today’s mortgage and loan market however, there are many lenders available including private lenders that are willing to finance higher risk individuals and high ratio mortgages that the large banks commonly refuse.
What Can UCC Do for You?
At Unimor, we have access to a large pool of institutional and private lenders who provide a variety of mortgage products that cater to clients with past credit issues, even bankruptcy.
Examples of challenging situations for mortgage lending and loans:
- Power of Sale Properties
- Previous Bankruptcy
- Mortgage and Tax Arrears
- Inability to Prove Income
- Consumer Proposals