What banks look for when you apply for a loan

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Dear Money Lady:

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I wanted to know if I should agree to give my SIN when I apply for a loan. Should I?

Gregory

Most people never want to share their Social Insurance Number for fear of being reported to their credit bureau, but unfortunately you may find this necessary when your lender asks you to do so, who needs to guarantee your identity due to an increase in consumer fraud.

If you apply for credit at a bank, open a bank account, or finance a vehicle, you will likely need to disclose your Social Insurance Number (SIN). Many people still believe that they should never accept an application or give out their Social Insurance Number too often to get credit. They think their credit will either be damaged or their credit rating and score will go down. This is sometimes not true. So to help you Greg, I’m going to dispel all the myths and also let you know what the banks are looking for.

There are two major credit reporting agency companies that all financial institutions and merchants use today. These are Equifax and TransCanada Union – agencies that rank and assign an overall rating to each person who uses credit. The system for measuring your credit score results is indeed intuitive, which means that it measures and assesses the type of merchant and the request. So he knows if you are shopping. If you have multiple inquiries from different banks because you are shopping for a mortgage, you usually won’t see any drop in your score (however, those inquiries must be contained within 30 days). Same thing when shopping for a vehicle, multiple visits to your credit bureau from car dealerships will not change the score if they are contained within 30 days.

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But, on the other hand, if you really shop and go to different stores, apply for multiple credit cards, personal and retail loans, or buy items with deferred payment plans, then YES it will bring down your score regardless of the 30- day limit.

First and foremost, you want to protect your credit. It is the foundation of all loans and it is the only way for lenders to judge your creditworthiness for the future. If you always pay your bills on time and have never filed for bankruptcy, the chances are good that you have good credit. But if you are the opposite and your credit score is too low, it can be very difficult for you to get future credit. Your credit bureau score can range from 300 to 900. Typically, banks and A lenders look for clients with a score above 680 and will usually automatically decline applications with a score below 600. Issuing companies Credit cards are a little more forgiving and go down to 530, with automatic declines for scores below 500. Here are some tips for improving your credit and maintaining a good rating.

  1. Pay your bills two to three days before they are due. Paying them on the due date (especially via online banking) will make you one to two days late. This is recorded on your credit bureau and will definitely lower your score without you knowing it.
  2. Do not carry over credit card or personal loan balances from month to month. This means that your credit is revolving and will automatically lower your score.
  3. Resist the urge to have a lot of open credit cards, even if they have no balances.
  4. You must have credit. If you had bad credit and now only use cash, you’re essentially handcuffing your future. Without restoring good credit, the banks will turn you down every time.
  5. Overdue property taxes and support payments can also lower your score once they are reported.
  6. Overdue mortgage and vehicle payments, once reported (which usually happens after 60 days) have a major impact on your score. Please try to avoid this.

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I have heard in the past that some traders or banks take small hits on your credit. Please don’t be fooled by this. There is no “soft blow” or “hard blow” to your credit bureau. If they have your verbal consent (even if they don’t have your SIN) when deciding on a consumer credit application, they will take your credit and that will adjust your score.

Good luck and best wishes.

Christine Ibbotson

Written by Christine Ibbotson, author of four books on finance and the Canadian bestseller “How to Retire Without Debt and With Wealth”. Go to www.askthemoneylady.ca or send a question to [email protected].

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