How a simple credit error can ruin your home-owning dream
Imagine the anxiety of watching your credit score unexpectedly plummet after spending your entire adult life maintaining good credit. This is precisely what happens to mortgage applicants all across the country with surprisingly frequency.
All too often the culprit behind these sudden credit score drops is unpaid phone bills. In one case, a cell phone provider sent an individual's account to a collection agency after being just more than a month late on its cancellation fee. This individual's score took a hit, dropping by 80 points.
Reputable creditors typically make bona fide efforts to contact debtors for payment before taking this extreme measure. Unfortunately, it doesn't always happen, and the result in a credit score drop can make the difference between getting approved or declined by mortgage lenders or insurers.
Lenders have a minimum beacon score required in order to meet their approval standards, usually a minimum beacon score of 620. For the best rates and product, scores as high as 680 are required.
There are some lenders who, regardless of your score, will look into loaning you funds to purchase a home, assuming you've collected a much bigger down payment (20% minimum). The interest rates offered by these lenders are also much higher than the traditional "A" lender rates.
Here are a few tips in order to avoid credit score drama:
- Do you pay bills from your credit card? If that card number changes, notify the companies in which you've used your credit card to pay your bills from to avoid missed payments.
- Whenever you move, ensure you contact Canada Post and ask them to forward your mail to the new address for six months.
- Prevent unsuspecting credit surprises by checking your score before you apply for a mortgage (and put down an offer on a home)... Do this again 90 days before your closing date to ensure if something did happen you have sufficient time to correct the issue.