Last updated: May 2019
So You Want to Get a Mortgage with Bad Credit?
One of the mortgage clients I am working with right now has a Telus Mobility collection that is preventing her from getting a mortgage approval. The hard to swallow part is it looks like Telus Mobility and their collection agency may have broken the law, yet my client is the one to straighten up the mess!
As you are likely aware, your ability to get a mortgage, loan or credit card depends on having a good (enough) credit repayment history in your credit report. As a mortgage broker, I have seen a lot of credit reports and I have seen a lot of reporting errors and damaged credit scores. Luckily, and with some effort, errors can be corrected and your credit score will improve dramatically. To make these fixes, however, you need to understand the rules and how to approach resolving the problem. Interested? Read on ...
Credit report errors are common. To fix credit errors, you just need to get pointed in the right direction.
Credit Rating Review
Your “credit rating” is a numeric score that is calculated on the fly based on whatever data is in your credit file. (Scores in 500s or less are considered poor, 600s are OK, 700s good, and 800s excellent). If the data in your credit file is wrong, then the resulting score and your ability to qualify for credit or best mortgage rates may be affected. Think of bad data as a wrong ingredient in a recipe - it can spoil the cake!
Your credit file is maintained and score calculated by a credit bureau or credit reporting agency. In Canada, these agencies are Equifax and TransUnion. For more information see Understanding Your Credit Report and Credit Score.
So to do battle for your credit score, you need a copy of your credit report, and to understand these key points. Read them twice!
What can and cannot be on your credit report is governed by provincial legislation called the Credit Reporting Act.
Credit reporting agencies and creditors (ex Telus, Rogers, Visa, MC, etc.) are required by the Credit Reporting Act to report the truth. It’s the law!
If the truth is not represented on your credit report, both the creditor and the agency (let’s use Equifax as our example) are required to correct your report.
With these key points clearly understood, your task then becomes simply determining:
- which creditor is NOT reporting the truth,
- contacting the creditor to ensure you both agree on the “truth”, then
- making sure they DO report the truth to Equifax, sometimes easier said then done!
It is important to understand that Equifax is just a computer database storing whatever credit data creditors send (or fail to send) them each month on you. They don’t verify it, they don't judge it, and whenever your credit report is requested, Equifax just spits out the data and calculates a score.
As an example, if you had an unknown bill that went to collection, and the collection agency contacted you and took your payment but never bothered to update Equifax, then your credit report is going to show an unpaid collection, which is NOT the truth. The collection agency is required by law to report the truth. Equifax simply reports what the creditor tells them.
So you call the creditor. Here’s what might happen.
They disagree with your rendition of events. In this case, it helps to be prepared with payment dates, records, names, etc. and respectfully you go through the details and reach agreement on the “truth.” Make sure you get the name and telephone extension of the person you are talking to, and get them to provide the date on which they will next report to Equifax (typically, they report once per month).
They try to brush you off. It’s not their fault the creditor says, you must contact Equifax. “Bullship,” you say, “Equifax only reports what you tell them and you are required by law to report the truth.” Make sure you get the name and telephone extension of the person you are talking to, and the date on which they will next report to Equifax.
They acknowledge and agree to correct the error. “Sorry, Mr Jones, we’ll update your credit record on our next reporting cycle.” “Thank-you, “ you say. “What is your name and telephone extension please, and what date should I expect you to next report to Equifax, so that I may follow-up?”
Turns out they are reporting the truth. If you owe some money, get in writing a letter that says upon payment, they will report to Equifax a zero balance and either paid-in-full or settled. Once you have the letter, make your payment as agreed. Find out when they will next report to Equifax.
Mark the next Equifax reporting date in your calendar along with your notes and name and number of the person you spoke with, and follow-up! Give it a few days extra, then check your own credit report. Why do you need to follow-up?
Many collection agencies and collection departments don’t give a flying pig about you or your credit score. Maybe they hate their jobs, chasing after money day-in and day-out. Often they get commissions based on how much money they collect, and updating your credit file is viewed as a waste of their time and an activity that doesn’t increase their pay cheque! (I’m serious!)
When the person you talked to knows you are going to follow-up (because you tell them so), the path of least resistance is often to just do what you ask and report the truth, and avoid the future hassle.
If the creditor does not update your file as and when agreed, you hound them. Call back, find out what went wrong, ask for their supervisor, and threaten to file an investigation (complaint) with Equifax. That should get action.
A Final Word
Correcting mistakes and errors on your credit report can be a real pain in the arse. But if you don’t undertake the credit repair work, who will? Your ability to get the loan or mortgage you want depends on an accurate credit report. What is a material error depends on what loan you are trying to get. A good mortgage professional should be able to help you figure out a strategy and coach you through the steps. You can get a mortgage for bad credit, but they are costly and require a much larger down payment. I hope this article can help!
- Understanding Your Credit Report and Credit Score.
- Credit Score Improvement Program
- How to Tune Up My Credit
- More About Credit
PS - Let me know if you want to hear how it worked out with Telus Mobility collection and my client. Share your own story!
Post by Chris Richards