Bad credit is a reference that brings up a lot of negative connotations. I prefer to use the term, “Bruised Credit”.
A bruise is an area of discolouration caused by a blow or impact. And we all know, bruises improve and can go away if there’s no continued injury.
If you have bruised credit, it’s imperative to resolve it and re-establish healthy credit history for the best chances of mortgage approval.
What is bruised credit?
Bruised credit can include any or all of the following, which results in specific bruises on the credit bureau report, or contributes to a lower FICO score.
Late or missed credit account payments
High utilization (maxing your available credit on a regular basis)
Account balances over the available credit limits
Outstanding collections
Recently paid collections
Accounts that have been written off
Accounts that are involved in credit counselling
Bankruptcy
Not paying the minimum payment due on credit accounts
Other public records, such as Maintenance Enforcement (child support) judgements
Unpaid income tax
Liens on your home
Co-signing for others who have done any of the above on the co-signed account
Errors (Lender or credit bureau errors can occur and negatively affect credit)
Fraud (Fraudulent actions can have a negative impact credit)
How to Recover:
Depending on the severity of the bruise(s) will determine the exact next steps. However, a general rule of thumb is to do the following;
Resolve outstanding collections, liens or judgements
Always pay at least the minimum amount due on your revolving credit accounts each month, and ideally more than the minimum
Do not miss payments
Ensure payments are made on time
Pay your credit accounts below the credit limit
Ideally, pay those accounts to below half the available credit limit
To recover after bankruptcy, consumer proposal or credit counselling, open two new credit accounts after the date of discharge and practice good habits for at least two years
After a credit bruise, many consumers shy away from using credit in fear of the same thing happening. Credit can become bruised very quickly, but rebuilding takes time. Credit will not recover if it’s not used. Be patient and practice good utilization and repayment habits and slowly credit will improve.
Disclaimer - If you have a large down payment of at least 20%, there may be some lenders interested in an application despite credit bruises.
Let’s chat about what lenders are looking for in a good mortgage consumer! We can build a plan to help improve your credit for the greatest chance for a mortgage approval. Call me today!
Sarah Nixon-Miller, Mortgage Broker
Nixon-Miller Mortgages Inc.
TMG The Mortgage Group
902-225-7077
Toll-free 1-844-315-6609
sarahnm@mortgagegroup.com