In the last couple of months, I’ve seen some really simple or easily fixed problems that have almost nixed a couple of deals. I’ll say the majority of these have to deal with issues involving credit bureaus.

The second most popular phrase I hear when people call me (after what’s your best rate) is “I think” my credit is bad. Now in limited cases, yes it very much is bad, but in almost all cases we have items that either the client simply isn’t aware of or they are aware of but have chosen not to do anything about, either because of lack of knowledge or hoping it will go away on it’s own.

Let’s start with a simple question: when is the last time you pulled your own credit bureau? This year? Last year? Oh, my banker told me it was OK, nothing to concern myself with?

Step 1: find out exactly what IS on your credit bureau and MAKE SURE it is YOURS! First off getting the report (with out the score) is FREE to call consumers once a year. Second, identity theft is the fastest growing “industry” on the planet. Most people are completely unaware to having their identity stolen, until they either apply for credit or use exisiting credit to find out it has been maxed out or canceled.

Step 2: once you get the report, go through it step by step. Are all the items on the report known to you? Are there any errors (like parking tickets from Winnipeg that have gone to judgement, but you’ve never been to that province)? Does it have the correct birthdate and current address (if your address is different this could be a major problem)? Is the spelling of your name correct? Do you have unexplained aliases? Are there new credit cards listed that you have not applied or remember applying for?

Typically, everything on your bureau should be listed as regular payments on time within 30 days (or R1). Unused credit will show as R0. Anyone who has missed a payment, it’s happened to the best of us, might show an R2 or payment after 60 days.
Most importantly, do you have anything that is indicating that you have an unpaid credit of any kind (in the credit lingo or short form an R5, R6, R7, R8 or R9). If you have something like this, NOW is the time to fix it. Don’t be embarrassed by this, it’s happened to my wife and several of my clients. They all didn’t know, as they all didn’t check their credit bureaus. The scenario is the same. Used a store credit card (HBC, Zellers, Future Shop, etc.), paid the balance owing on the most recent bill and moved the following month. Mail didn’t get forwarded for some reason the following month or was returned when the next bill was sent with a $5 late payment fee or interest fee because payment was a couple days after the due date. Credit company shows late payment R2, R3, R5 & R9 when it sends the file to a collection agency for an incredible sum of $15 (interest adds up over the months at 28%).

For a single missed credit card payment, that you can honestly say you received no notice of and no other credit company had problems updating your address, you now have a collection on your credit bureau and likely at least 100 points of your score. OUCH!
Typically when do you find out about this small problem? When you go see your friendly neighbourhood mortgage broker and he tells you in order to get you a mortgage, you need to pay that Rogers bill from 2005 that’s gone to collection. In one case, the score dropped 1 point below where I could qualify them for a mortgage. Yes, 1 point. The lender wouldn’t budge (welcome to the new reality of lending). Even with an explanation and proof the item was paid (and this was the ONLY item pulling the score down).

Please don’t get yourself into this situation. Check your bureau and fix the little things promptly or get things removed that are not yours an protect yourself against identity theft.

Equifax & TransUnion use a “secret” and complex mahtematical model, designed to give a number that represents performance over time in order for lenders to calculate the potential risk of a client. Everyone admits it is not a perfect model, but it at least provides some kind of indicator. Unfortunately some lenders have this bad habit of see it as a hard and fast number and base all decisions upon it.

Early on in the history of this blog, I posted general information on how to fix or improve your credit score.  The information hasn’t changed. Summarized as pay early, pay often, keep balances low or zero, keep that old credit card active and in use and have more than one form of credit in your personal name.

Previous posts:

http://www.forallyourmortgageneeds.com/wordpress/?p=5

http://www.forallyourmortgageneeds.com/wordpress/?p=28

http://www.forallyourmortgageneeds.com/wordpress/?p=79

Folks,

I’m in the process of transferring hosting providers and the transition isn’t going as smoothly as hoped. So, if the site appears down, disconnected or you get some weird message from WordPress, stay tuned it should only be temporary.

New kids on the block this week/month.

Abode Mortgage corporation has just made it on to my radar. They are currently the only mortgage lender (i.e. non-bank) who are willing to look at people who have a portfolio of rentals. I’m hoping by providing them with a simple DCR calculation for the portfolio that they will then focus on the new purchase only. Good news for my clients with more than 3 rentals buying another rental.

Abode (please excuse if I type this as Adobe, old habits die hard) have introduced a new product called Habitat Mortgage. The premise here is the company will put aside $25 for every deal closed and donate to a habitat partner (like Habitat for Humanity). So we have a new lender trying to help our community in a new and different kind of way, by donating to a charity. The taxable receipt of course will go to the mortgagor, not the lender.

There is also a new excel spreadsheet that a lender (Laurentian) has created for us brokers called the “Smart Mortgage” which will show you the effects of compounded interest versus what happens if you switch to bi-weekly payments or increase your monthly payment by a fixed amount.

In one case, I had a gentleman decrease his amortization by 11 years (from 40 to 29) in the space of 18 months. Net savings over this time frame was in the $110K range. *ALL* interest.

This Smart Mortgage calculator is designed to show you the savings you can achieve by for several different options.

I’m attaching the spreadsheet for anyone who wants to play around with it. No point in my hanging on to it (now if I could just get it work in OpenOffice…:-) (**note file was too BIG to upload, sent me an email I’ll forward it to you)
I think I’ve mentioned this tool before, but just for completeness I’ll mention it again. I have at my disposal, the “RightMortgage” calculator. Simply stated, you (actually only me) enter in the raw numbers and you can then watch how the interest rate changes right before your eyes as you adjust various terms to the mortgage (amortization length, double up payments, high-ratio vs conventional, quick close vs 30 days plus).  Quite facinating for those engineering/numbers people (like me). You can do “what if” scenarios until you’re blue in the face.

That’s it for this week.

… and it’s not a freight train.

This week see’s reports from Bernanke (who’s name I always have to check the spelling) chairman of the US Federal Reserve (or The Fed for short) and from President Obama himself indicating that they are both optimistic about the end being near.

If you read into one of the articles, it says that (paraphrase) the steep decline has slowed significantly.  In stead of an exponential decline, we are now only experiencing a linear decline.

What’s a good metaphore… We’ve had an arterial hemorrhage for the last few months, pressure has been applied to the wound directly, clotting has formed and it’s now mearly and arterial bleed. Patient is not quite stable, but IV’s have been started to compensate for the volume loss.

Hm. Now how would you best describe inflation within this metaphore? Fever or infection? It’s weird. We are all focused on the critical items, the ABC’s if you will of First Aid (Airway, Breathing, Circulation). Now that we have those close to under control we can now start to focus on secondary items (trauma, internal bleeding, broken bones, etc.).

We all know there’s going to be more fallout from the housing melt down. What form it will take is anyone’s guess (things like job losses that will likely get worse before they improve). The thing that is making everyone a little excited is the massive printing of money going on. From economics 101, we know that printing too much money results in inflation. At the very least we are doing to see a sudden jump in inflation at some point, how much and how bad will depend upon several factors. Unfortunately inflation statistics are always trailing indicators. The Fed has to react in anticipation of these numbers (raising rates to counter any sudden increase in inflation), but if they raise too soon or too quickly, then the economy stalls. If they don’t act quickly enough, inflation spirals out of control and potentially the opposite happens and deflation sets in.

I’m glad I’m not in their shoes. Damned if you do, damned if you don’t. Meanwhile all eyes around the world are focused on you. No pressure. Just the entire global enonomy reacting to your every move.

“The operation was a success, except the patient died.”

Let’s hope things do stablize (i.e. the housing market has hit bottom and sees an ever so slight increase) before we start any kind of major operation to “prevent” this kind of crisis from happening again.