Expert Advise on Credit

As mortgage professionals, we are in an ideal position to help clients "score credit points" by providing helpful advice to those having difficulty obtaining an affordable mortgage. For instance, all three credit reporting agencies offer consumers free access to their credit reports on an annual basis if they apply in writing. They can also secure their credit score online. While the reporting agencies charge a fee for an online credit score, consumers also receive an accompanying copy of their credit report.

This can be helpful information for many people. Applicants who have reviewed all three of their credit reports prior to applying for a mortgage have an opportunity to rectify any errors. This can also provide an opportunity for you to discuss with them any potentially problematic issues and suggest ways in which to address these issues.

If an applicant has accounts in arrears, for example, you may suggest these should be paid in full or settled with creditors as soon as possible. Debt management professionals can assist in arranging lump sum settlements of accounts. While a paid or settled account is reported as delinquent for six years from the date of the last payment, the longer it has been paid or settled, the less impact it will have on an individual's credit score.

If an applicant's credit report indicates an insufficient credit history, this can be established if the individual obtains new credit (ideally a personal loan or line of credit of a minimum of $5,000, plus a credit card) and builds a reliable payment history for 12-24 months, depending upon the amount of available equity.

For those with more serious credit issues, your best advice would be to refer them to an appropriate personal finance professional.

Serious issues would include a very low credit score, maxed-out credit, several payment delinquencies, or a consumer proposal or bankruptcy. By referring such applicants to a professional specializing in debt management or credit optimization, they will be able to develop a strategy to improve their credit scores.

Individuals with a very low credit score and unmanageable debt may have to undertake a consumer proposal or bankruptcy in order to improve their cash flow and enable them to restore their credit profiles over a longer period of time. In this case, you might want to refer the individual to a bankruptcy trustee that is licensed to administer these solutions.

Mortgage insurers require consumers that have completed one of these formal insolvency processes to have significant re-established credit of at least two accounts (ideally, a loan and a credit card) for at least 12 months. In most situations, however, a low credit score may be raised sufficiently to secure a mortgage within a few months through informal counselling or coaching.

Ultimately, by directing unsuccessful applicants toward financial professionals who can help them "score points" for their credit profile, you can build your future business with appreciative applicants who return to you or refer their friends and family members to you.

So keep in mind, when you score points for your clients, you score points for yourself: repeat business and referrals.

Eric Putnam is a senior advisor and financial coach with BDO New Beginnings (www.bdonewbeginnings.ca), which helps Canadians resolve their financial problems and optimize their credit profiles


Consumer credit scoring formula example

Payment history - 35% weighting. Recent payments more than 30 days late, collections, judgments and bankruptcy negatively impact payment history.

Outstanding debt - 35% weighting. This includes the number of creditors owed, balances and allocated limits.

Credit account history - 15% weighting. This refers to the length of time accounts have been open.

Recent inquiries - 10% weighting. This includes hard inquiries from lenders within the past 12 months.

Types of credit - 10% weighting. This includes a mix of revolving credit accounts (card or line of credit) and installment loans.

Source: Equifax Canada