Recently I was on a deal where a client had horrific credit. They seemed confused as to how bad their credit really was. Thought it would make a good blog post.
While there really are no standard defined credit categories, there are broad divisions in levels of credit. Each lender – bank, sub-prime, private – uses their own “special recipe” to define who they wish to lend to. But there are some basic concepts when it comes to the different categories of credit.
Let’s start with the “Excellent” credit category, and get it out of the way. NO-ONE calls me that has “Excellent” credit. If you have “excellent” credit, you can certainly call a mortgage broker – but there is usually no need. I am one these people who have excellent credit – 800+ beacon score. I have never missed a payment in my life. I have never bounced a cheque. I must have been late on a payment at some point in my travels – but I do not recall when it was. I have three credit cards, with credit limits totaling around $50,000 – but I make a payment each month, and would NEVER dream of carrying a balance past the statement date, or utilizing more than perhaps 15%-20% of my credit limit in a given month.
For people with “Excellent” credit, you can pretty much do what you wish in life. No-one questions you about very much. Car loans are approved in seconds. The credit card companies constantly beg you to increase the credit limit, or get another card. The normal approval process for financial transactions is often “Short-Circuited” for people with extremely high credit scores – as banks know people with these kind of scores offer virtually zero chance of non-payment. So instead of asking 20-50 questions, you get asked 5. Let’s move on.
Next is the “Good” credit category. Again – I rarely get calls from people with “good” credit. It varies by lender, but for me “good” credit is anything above 650 beacon score, and without a bunch of rubbish entries all over the bureau. There will probably be several of the usual warning lines at the top of the bureau: “Amount owing on revolving accounts too high”, “Proportion of balances to credit limits too high”, “Too many accounts with balances”, “Number of lines with high utilization”, “Utilization Greater than 75-99% of High Credit”. All kinds of good stuff there. BUT – we will probably not see: Unpaid Collections, Judgements, Bankruptcies, Consumer Proposals.
For people with “Good” credit – you can usually get your financing from a bank, assuming there is not bunch of rubbish as I outlined above on the bureau, and as long as the other bank criteria are met: – verifiable income (that is sufficiently high), reasonable loan to value on the property, reasonable uses for the money being borrowed, property location/use/condition isn’t an issue.
Next is the “Bruised” credit category. I get lots of calls from people with “bruised” credit. It varies by lender, but for me “bruised” credit would be a beacon in the mid-500’s right up to 620ish. There is likely to be a bunch of rubbish on the credit bureau – unpaid collections, discharged consumer proposal, discharged bankruptcy. ( There are likely to be other things in the background that CAUSED the rubbish to appear on the bureau – employment, divorce, health, etc. – but we are discussing CREDIT right now, so let’s leave these out of this post.)
With “Bruised” – it can go either way. Might be “Subprime”/”B-Lender” or “Private”. Depends on who will do the deal, and depends on what is cheapest. Although all lenders have criteria as to who they will extend financing – in many cases, the approval takes on somewhat of a “global” perspective. Credit is really bad – but income and loan to value is really good – so they will do the deal. Credit is really bad – AND you just started your job 3 weeks ago, AND house is way up in New Liskeard – we won’t do the deal. So the deal has to be “shopped around” to see who would lend, and on what terms.
Last is the “Horrific” credit category. I get lots (and lots) of calls from people with “horrific” credit. Here, we have beacons right down into the 300’s, sometimes there is no beacon at all (“R” – for “Reject”). All kinds of nasty stuff on the bureau – Collections, Judgements, (Undischarged) Consumer Proposal, Bankruptcy. (There is usually something going on in the background too – Power of Sale, Eviction, Employment, Health, Divorce, etc. – but we are discussing CREDIT right now, so let’s leave this out of this post.)
For “horrific” credit – it is private money only. No-one else would even consider the deal. If you go to a bank with “horrific” credit, the meeting will last about 2-3 minutes before they shuffle you out the door. Sometimes we can weasel a “horrific” credit deal into a “Subprime”/”B-lender” and they will do it – based on the rest of the financial scenario (employment, low loan to value). But most often, private is the ONLY option.
If you are calling me with “Excellent” or “Good” credit – you really don’t need to call me, do you? If you are calling me with “Bruised” credit – depending on how bad the “bruising” is – you can call me, or any number of mortgage brokers.
But if you have “horrific” credit, and particularly if your situation is dire – maybe you have been evicted by the Sheriff and are living in a hotel. Maybe CRA just hit you with a 40% gross wage garnishment. Maybe you are in Power of Sale with the Bank, or have multiple Power of Sale actions going. In this category ….
You should probably stop reading this post, and contact me right now. Do you expect the situation to get better on its own? Time is not on your side. You need to stop procrastinating and get on with it.
Send me an email.
I am a direct pipe to millions and millions of dollars of private money – and nearly always, can get you out of the situation you are in, and start you on the road back to where you want to be.