10 Ways to Improve Your Credit Score

So you got behind on that credit card payment. Or you were laid off for awhile and couldn’t keep up your car payments. Or that student loan is in arrears because it took you a while to get a job. Now your credit score is lower and you want to move on with your life – maybe buy a house or get a new car. Don’t underestimate the power of your credit score. It not only reveals to a lender if you’re a good credit risk, it’s also the basis for the interest rate you’ll pay. In today’s credit world, if your score is low you can still get a loan for a car or a home, but it will cost you. Lenders may charge extra fees and will certainly charge you a higher interest rate.  This is a costly proposition. However if you’re patient and persistent, you can improve your credit score in six to eight months. Here’s how:

1. Pay bills on time: Pretty obvious, right? Late payments are the most common piece of negative information that appears on a credit report. Since payment history accounts for 35% of your total score, getting behind has a big impact. If nothing else, pay the minimum by the due date. By the way, any late payment will affect a credit score –cell phone bills, child support payments, etc.
2. Keep balances low: If balances on your accounts equal more than 35% of the total credit available to you, it will actually hurt you. I know, it doesn’t seem right -- why have a credit limit of $1,000, let’s say, and only spend $350 of it? It’s all about proportion-- thirty per cent of your credit score is based on it.  A good credit risk is someone who doesn’t need credit. Go figure! TIP: For disciplined credit users: Call your credit card company and ask to increase the limit – this will decrease the proportion you’re using.
3. Don't close unused accounts: The longer your credit history, the better. The length of time you’ve had credit is worth 15% of your total score. You get a star for each creditor you’ve had a positive history with –it’s proof that you’ve consistently paid on time. So don’t close older and unused accounts. Just put the cards away and forget about them.
4. Only apply for credit when you need it:  It’s pretty common to walk into a store and get asked to apply for the store’s card to pay for your new purchase – the retailer will even offer you a special deal.  Think twice.  Opening new credit accounts or having your credit checked frequently will hurt your credit score temporarily. The reason? It looks like you’re going credit crazy. New credit determines 10% of your score. So try using an existing card for that purchase unless you know you won’t be applying for a mortgage or a car loan in the next few months.  
5. Vary the credit used: Believe it or not, the types of credit you have accounts for 10% of your credit score. That means that having a car loan, a major credit card, a retail card and a mortgage can help your score.  But it’s not necessary to run out and apply for all that credit. (See item 4)
6.  Correct mistakes in your credit report: Get a copy of your credit report from Equifax and Trans Union and make sure all the information is updated and correct. As you can imagine, these two agencies deal with millions of pieces of information on a monthly basis. Sometimes mistakes can happen, which can result in false credit scores, which can lead to you getting denied a loan or paying more in interest.  
7. Separate accounts after divorce. Joint accounts are common in a marriage and once wed the info on each spouse’s credit report and their score will impact the other spouse.  If a couple divorces however, this creates a whole new set of challenges. A legal divorce does not absolve one or both from their financial obligations to their joint accounts. If both names are on the debt, it belongs to both spouses, married or divorced. 
8. Avoid bankruptcy, if possible: This is bad news for your credit score, but it may be the only option. If you’re at this point, then your score has probably tanked anyway—some debts may have gone into collection. Bankruptcy is not a death sentence – there is life after one. It’s just going to take time to rebuild your credit. This will take a few years – there’s no quick fix – but it does give you a fresh start. Talk to a bankruptcy trustee. 
9. Negotiate with creditors:  Your creditors are in the business of making a profit. If you’re not paying your bills, it impacts their bottom line.  Many of them can understand when financial challenges arise and you may be able to negotiate with them and come up with a solution that is mutually beneficial. Do this before you start missing payments.
10. Be patient: No credit score calculation here. It takes time to repair a credit score and/or to build it up. Follow the steps outlined here and you’ll be on your way to a Triple AAA credit rating.

Is real estate a good investment? The long answer is yes

It seems it’s a tough world for Gen Y’ers – high student debt, shortage of jobs, living with parents longer, and now the dream of home ownership might have to wait. Yet, an RBC poll released early in April found that young Canadians see home ownership as a good investment and 41% of the respondents plan to buy. The poll also found that 86% of those aged 25-34 believe owning a house or condo is a solid investment, up from 78 % last year.

So is real estate still a good investment?  The RBC poll confirms that it might be, at least as far a millennials go.  “The increase in the number of those who feel the housing market is a good investment, as well as the number of those who intend to buy, really highlights that Canadians have no doubt in the strength of the housing market”  said Erica Nielson, RBC’s vice president of home equity finance, about the poll results.

Here’s how the results breaks down per province:

• Ontario, Quebec and the Prairies saw the biggest surge in home-buying interest over last year
• Ontario, 24% said they have intentions to buy this year, up from just 14% in 2013.
• In Alberta, 28 % said they hope to buy this year, up from 22 % in 2013.
• Atlantic Canada also saw some increase in buyer intentions.
• In B.C. the percentage of those who are likely to buy a home has increased slightly, from one-in-five (20%) in 2013 to more than one-in-five (22 %) in 2014.

Interestingly, a discussion initiated by the Globe and Mail asking the question about real estate as an investment received a lot of attention. Those who answered do believe that a home is an investment that builds wealth in addition to it being a place to live.

Let’s take a closer look at that. Those who are pro a home as a good investment will point to the increase in resale prices over the past 10 years, which have increased more than 6% annually since 2000, according to the Canadian Real Estate Association (CREA), which is triple the inflation rate. This increase helped improve a household’s net worth, unless you were under the age of 35.

In February, Statistics Canada reported that the median net worth for families increased 78% from 1999 to 2012 on an inflation-adjusted basis, or about 4.5% a year. However, in households where the age of the highest earner was under 35, net worth grew just 8.6% in total, or about 0.6 per cent a year. Since inflation averaged 2.2 % over that period, as reported by Rob Carrick in the Globe and Mail, “those young-adult households actually lost net worth on what economists call a real basis.”

That’s not really a surprise since gains in net worth have been driven by real estate appreciation and those under 35 years of age have less equity in their homes. Can they catch up? Well, prices can’t rise indefinitely – so say many economists – so that may not be helpful when trying to make a sound financial decision.  However, there are a few hot markets in the country that might buck the trend.

For example, in Alberta, and especially in Calgary, real estate is a growth industry. Heather Manna, Managing Partner and Mortgage Broker at TMG Millennium Mortgage Group in Calgary says that real estate definitely is a good investment. “Over the last few months we have seen lenders loosen the reins on financing restrictions, which is making it easier to qualify a consumer who is in the market to purchase a new home,” she said. “This, combined with the low mortgage rates, continues to make real estate a great investment, whether you are buying to occupy the home, or purchasing for an investment.”

And why not invest in real estate, Manna asks? “Just like the stock market there will always be lows and there is always a correction. It’s about keeping well diversified and that includes having your home in your portfolio,” she said. “If you need a roof over your head, you might as well be paying your own mortgage down instead of someone else’s.”

There is also a shortage of listings in the Calgary market, which is upping the prices there. The rental market is also very tight with a 1% vacancy rate. “If not purchasing a property long term for your family, the rental market proves to be aggressive year-after-year for income earning potential or a retirement plan,” Manna added.

Granted, Calgary may be an exception, however there are similar hot markets in both B.C. and on the Prairies. Ontario and the Atlantic provinces have hot areas. Some economists say that prices will struggle to show any real gains in the next five to 10 years unless you happen to be in a hot market. But in some of those markets affordability is the real issue and young people are looking for help with larger down payments from their parents.

The hidden story for Gen-Y’ers is debt load. Statistics Canada says under-35 households owed $36.44 per $100 in assets in 2012, by far the highest of any age group. Purchasing a home adds to that debt load, not only with mortgage payments, but interest, property taxes, insurance and maintenance costs. If there is a modest 5% drop in house prices, then a 5% down payment equity position is wiped out.

However, in a Globe and Mail article published on Wednesday, April 23, Will Dunning, chief economist of the Canadian Association of Accredited Mortgage Professionals (CAAMP) says he thinks that home prices have turned.

Using data from the CREA, he said that sales of existing homes rose last summer and peaked in the August-September period. Although here has been a slight rise during the past two months, he doesn’t see this as meaningful.

Dunning referred to the Teranet-National Bank home price index, which shows a very gradual increase in prices over the last while. “If you take the price index and seasonally adjust it, it shows a sharp pick-up in price growth around the time I would have expected it to have occurred, and “the last data point hints that on a seasonally-adjusted basis, the period of rapid growth has ended – when it should have.”

With prices stabilizing, low rates, larger down payments, real estate starts to look better, especially as a long-term investment, which it actually should be. There was a time when a couple would buy a house, live there, raise their family there, and then retire there, mortgage free. We may be coming into those times once again.

 The most important question to ask is, “am I ready?” Consider a home a long term investment -- its value will fluctuate up and down over time, but eventually you’ll be mortgage-free. It’s a big commitment, but it’s also a great achievement. Home ownership offers a great deal of personal satisfaction, as well as financial stability.

There is no right or wrong time to buy a house. Mortgage rates and house prices will fluctuate but over the long term, home ownership is still a sound investment. 

Ask yourself:

•  Are you at the point in your life where the idea of home ownership is attractive and makes sense, both now and for the long term? 
• Do you qualify for a mortgage, and how much? If you don’t know, talk to a mortgage professional.
• Can you manage the mortgage payments as well as other expenses that may come along with home ownership, such as maintenance costs and higher insurance fees? 
• Do you have a down payment?
• Do you have a strategy to take advantage of this low interest rate environment to more aggressively pay down your mortgage and accumulate equity?

If you answered yes, then it’s the right time to invest in real estate.

Why BMOs rate cut is good news for everyone

By Mark Kerzner, President of TMG The Mortgage Group

Last week BMO announced a cut to its 5-year fixed mortgage rate to 2.99%. This really isn’t a surprise since this is the third Spring in a row that the banks have been cutting fixed rates as a way to kick start the lending season. In both 2012 and 2013, then Minster of Finance quickly spoke against the move. This time, however, we have a new Minister of Finance who has stated that he will stay out of the mortgage market.

And like the last couple of times, the rate cut has given the broker industry a higher profile among consumers.

The first time we saw this offer we might have thought it was a blip, the second year we may have thought it a coincidence. Now that’s it’s happened again, we can safely call it a trend – during the Spring market, pricing seems to get hyper competitive. This is good news for both the mortgage industry and for consumers.

When BMO first introduced a 2.99% fixed rate more than two years ago, we posted a blog titled, BMOs Slap in the Face. Dan Pultr, Vice President of B.C. wrote, “brokers are silently cheering because this additional publicity will bring a renewed focus to the mortgage market; and the more noise generated by the banks, the more questions and more phone calls we get from clients.  As mortgage professionals, one of our goals is to educate the consumer to ensure they make the very best decision when it comes to their mortgage." 

In March 2013, we again wrote an article about the competitive mortgage market in the wake of BMO lowering its rate, albeit briefly, to 2.99%.

Let’s take a closer look at BMO’s recent 5-year, low-frill special:

•  It comes with a lower maximum amortization: 25 years max
• There is less lump-sum pre-payment ability: 10% maximum per year
• There’s a smaller payment increase option:  Up to 10%, once per year
• It’s a locked term:  The low-rate mortgage is fully closed unless you sell the property, refinance (with BMO only), or early renew into another BMO mortgage. In other words, unless you sell, you're not leaving BMO for 5 years.

Combine that with the fact that BMO's interest rate differential (IRD) for early payout is one of the worst out there; consumers may not want to risk being caught should they sell or have to pay out early.

There is, however, one big difference with this year’s rate offer -- the market was already at or near the 2.99% level. In some respects the banks have lagged instead of led.

Once again, the positive aspect is that it raises awareness for the mortgage industry and helps brokers reinforce their value proposition.

The other positive, is that other lenders will likely follow suit and match BMO’s rate or even go lower, which is good news for  consumers. So, whichever way you look at it – BMO’s rate-cutting trend is a win-win situation.

Gen-Yers and home ownership

There are nine million Gen-Yers or “millennials” in Canada, many of whom are financially savvy, have control of their money, take a long-term approach when investing and are keen to own their own homes.  Despite high student loans to repay and fewer job opportunities, millennials are thinking about money in very different ways than their parents.  According to TD’s 2013 Investor Insights Report, this group is saving to invest; they use the Internet to track the stock market through their mobile phones and are skeptical of financial advice, meaning they do their research.

The Index also found that millennials start investing when they are 20, compared to Boomers who started investing, on average, at age 27.  They would like to invest even more of their money, making them a group with serious financial clout. For many, home ownership is a priority.

Here are some facts about millennials; new learning we can all benefit from:

1. Millennials take a conservative approach when investing.  Forty per cent take a long-term, buy-and-hold approach. 
2. They currently invest 18% of their income but would like to invest up to one third of their income. The TD Investor Insights Index found that saving for retirement was a top investment goal followed by saving to buy a house, then travel, then achieving financial independence.
3. Millennials love TFSAA accounts because of the flexibility.
4. They are independent, ask a lot of questions about investments and do their research.

In 2013, the Canada Mortgage and Housing Corp, (CMHC) held seminars identifying this age group as a growing opportunity for the Ontario housing market. While millennials accounted for 15 per cent of home ownership demand in Ontario in 2012, by 2016 they will own about 35 per cent of the province’s homes.

About one-third or 30% of those interviewed online said they expected assistance from parents or family. Nearly two-thirds (61%) said they have made cuts to their lifestyle to save for their first home.

The interest in home ownership is nationwide. A Bank of Montreal report released on March 18, found that first-time home buyers have increased their home purchase budget by six per cent to approximately $316,000. In Vancouver, Calgary and Toronto, those budgets are even higher. Fifty-three per cent of home buyers in the Calgary market will even break their budgets for the right home, compared to the national average of 33%.

In British Columbia, the Gen Yers are redefining the housing market there according to Melanie Reuter, director of research for the Real Estate Investment Network who has written a report about it.
“They are a more urban group, no longer dependent on a car, partly because of cost, and partly because they genuinely care about sustainability.” she said in a Globe and Mail interview. “They didn’t get their driver’s license the day they turned 16, it’s almost a badge of pride they wear, not needing a vehicle.”

They use transit, so will want to be located close to work, and close to transit hubs. Many were likely raised in townhouses or condos, and are familiar with living in smaller spaces. “They also like new spaces, as opposed to old houses they’ll have to spend weekends fixing up,” Reuter added.

For 35% of millennials, finding trustworthy advice is their biggest challenge. Twenty-seven per cent learned about savings and investing from their parents and family, 18% are self-taught and nearly half (48%) manage their own portfolios online.

The latest Market Insights from the Canadian Association of Accredited Mortgage Professionals (CAAMP) found that millennials  are a little nervous and apprehensive about investing in a home; however,  the majority of those who are homeowners are comfortable with their decisions and would make the same decision again. 

Interestingly, the report also found that mortgage brokers are a key channel for millennials looking for mortgage information, advice and arranging their mortgages, and turn to brokers 40% of the time. The broker’s value as an advisor, coupled with a strong customer service approach hits home with this age group. Younger clients see brokers as valuable consultants helping them to understand their options.

It’s a group that can’t be ignored.

Housing collapse? What housing collapse?

Bad news trumps good nearly every time in the media, especially in the financial media. Interest rates are going up, interest rates are getting cut. Consumers are in trouble with too much debt, consumers can handle their debts. We’re in a recession, were in a depression, we’re fine. There’s the housing bubble that never happened, but some are still waiting for it, and the latest -- escalating house prices and lack of affordability.

For the most part, the constant worry reporting by the media and the economists and pollsters who feed those headlines is overblown.

We have low interest rates, which will likely be here for awhile. We’ve heard how rates are on the uptick, but we’ve been hearing that since 2010 – it’s like the boy who cried wolf.  While it’s true that fixed rates did go up slightly, we’re back to discounted variable rates at 2.6%. And those 5-year fixed rates are sitting at 3.39% or less. We’re back to the future!

A look at housing prices across Canada and we see a picture that’s not so bad. Sure, the two inflated markets—Toronto and Vancouver – have crazy pricing, but in the rest of Canada, house prices seem to be rising at modest levels, unless, of course, you’re buying in a hot market – these markets come and go. 

StatsCan’s latest survey of financial security, released on February 24, shows that the median net worth of Canadian households reached nearly $244,000 in 2010. That’s up 44.5 per cent since 2005. While debt still remains historically high -- $27,368 (less mortgage debt) in the fourth quarter of 2013 according to Trans Union, most Canadians are wealthier than they’ve ever been.  

Overall, total family assets in Canada rose to $9.4 trillion in 2012, with the value of families' principle home representing one third of the total assets. Pension assets, including employer plans and private pension plans, made up 30% of the total, while other real estate holdings — rental properties, cottages, timeshares and commercial properties — represent almost 10%.

Will there be a rebalancing or a correction? It’s true that, after a long period of spending, consumers will cut spending to pay debt; however, Benjamin Tal’s (Deputy Chief Economist for CIBC), Weekly Market Insight Report, found that consumer spending rose 3.1% in the fourth quarter of 2013 and the savings rate remained stable at 5%.  Household debt is still a concern because it is still rising, albeit it more slowly than in previous years. 

Low interest rates, coupled with steady job creation, and a slight increase in wages, bodes well for the future of housing.

The Volatile Jobs Market

 In December, 2013, the economy lost 45,900 jobs instead of gaining what economists projected would be 14,000 jobs.  The unemployment rate rose to 7.2 per cent from 6.9 per cent in November and the dollar started to tank.

Then Statistics Canada reported on February 7, 2014 that the Canadian economy added 29,400 jobs in January and the unemployment rate declined 0.2 percentage points to 7.0 per cent. Analysts had estimated 20,000 jobs would be added last month.  The unemployment rate also slid 0.2 percentage points from December to 7.0 per cent for the first month of the year as the number of full-time jobs increased.

It’s hard to determine what those numbers mean. Is the economy healthy or not? The January numbers did offset the December losses somewhat, which means the economy is generating approximately 15,000 jobs a month.  That’s not bad, but nothing to write home about, wrote CIBC Deputy Chief Economist Benjamin Tal in his Weekly Market Insight report.

Minister of Finance Jim Flaherty said the said the job trend was good. "This is comforting as we plan the budget and plan modest, steady job growth in Canada," he said in a Globe and Mail report.

But a few economists remain cautious although it does represent a “nice recovery” said BMO Capital Markets chief economist Doug Porter, in a report. “In other words, the underlying trend in job growth is just firm enough to keep up with labour force population growth -- no better, no worse."

A more important indicator is the export market, which many economists and the Bank of Canada hope will lead Canada out of a sluggish economy. The trade deficit has widened $1.7 billion in December. This was a billion wider than the market expected.  Right now, the economy has paused, or at least that’s what a few economists are saying.  

The export market is key to Canada’s growth because without an active export market, Canadian goods are not leaving the country and no outside money is getting in. A healthy export market means more jobs as the manufacturing sector gears up to meet demand. It also means more investor confidence and a growing economy.

 Tal says Canada is in a non-linear recovery, but also says that, economically, the upcoming months will be uninspiring. Add the trade deficit to very low inflation, and a devalued loonie and we have an under performing economy. 

Instead of focusing so much on house prices and debt, a new consideration with our economy is that we are now lagging behind the G7 countries, which have already started their recoveries.

Lower loonie may not be so bad

A devalued loonie, coupled with low inflation, comes talk that the Bank of Canada (BoC) might consider cutting its overnight lending rate. The Canadian dollar hit its lowest level in three years last week, falling to 90 cents and the first time it has closed below 94 cents since June 2010. Could the BoC cut its rate to lower than the 1% it’s currently at? It could, according to some economists.  However, by looking at other new developments, the answer may be no.

The Canadian economy, over the past few years, has been buoyed by consumer spending and the housing sector, as we waited for global economies to turn the corner. As those economies start to ramp up their production, and as the American economy, our largest trading partner, starts to strengthen, it puts more pressure on our currency. The jobs numbers from Statistics Canada haven’t been great, and the trade deficit keeps widening. To stay competitive, something has to give, so our dollar starts to drop in value. This is not necessarily a bad thing for Canada’s big picture.

Earlier this week, the banks started quietly lowering their fixed mortgage interest rates. Then, BoC Governor Stephen Poloz’s rate announcement maintained the 1% prime lending rate, but his report also mentioned that low inflation was a concern. It remains at 1.2%. Poloz, however, doesn’t want to encourage more consumer spending, which is why he may not touch the trendsetting rate.

Another reason, of course, is that a weakened dollar is actually good for the economy.  Consumers will feel the immediate pinch with higher costs at retail outlets and grocery stores. Travel will cost more and cross-border shopping may not be a bargain anymore but the upside to the economy will eventually benefit most consumers.

A weaker dollar is good news for the manufacturing sector and exporters and to the people who work in those sectors. It means more jobs, income increases and bonus payments.  When consumers have more money, they will spend it, which will pump up a slowed retail sector. The lower loonie will also increase competitiveness and help sustain the economy.

While the retail and tourism sectors will be hit, there’s flip side. Canadians may decide to stay in the country and explore Canada. Cross-border shoppers may stay home and spend their money locally. Since American travellers are the most important source of tourism revenue for Canada, a lower loonie may start attracting them again. 

Like it or not, the weaker dollar may be here to stay. For now it may end up being the fuel to fire up the sluggish economy.