Module 3.5

Question 1

what is a credit beaurau

Answer 1

A credit bureau is an agency that collects, maintains, and sells information about everyone who has a bank account and/or a credit card or has had legal dealings concerning credit issues. The information is sold in the form of a credit report.

Question 2

2 requirements to pulling credit

Answer 2

the requestor has the individual’s permission to access the information; and
the request is related to credit, collection of a debt, rental of a house or an apartment, or an application for employment or insurance.

Question 3

what is a credit report

Answer 3

is an historical record of a person’s use of credit and his or her repayment behaviour for the past six years, as reported to and recorded by a credit bureau. It is the most detailed information that you can access about a person’s credit worthiness.

Question 4

what information is included on a credit report

Answer 4

personal info

credit info

banking info

collection info

consumer statement

Credit report inquiries

Question 5

what is a onsumer statement

Answer 5

any statement made by the individual to explain a particular situation, such as a dispute with a financial institution or a fraud warning

Question 6

what is included in personsal info

Answer 6

Name, current and previous address(es), social insurance number, telephone number, date of birth, current and previous employer(s)

Question 7

what is in credit info

Answer 7

Credit or retail cards, lines of credit, loans, or mortgages; with credit limits, current balances, on-time and late payments

Question 8

what will you see on banking info

Answer 8

Current bank accounts. May report NSF cheques. This may be a restricted view for brokers but not for bankers. For example, banks that report their mortgage balances and history are allowed to see mortgage information reported by other lenders.

Question 9

what are credit report inquiries

Answer 9

A list of everyone who has inquired about the individual’s credit (for example, the individual, a lender, or any other authorized organization)

Question 10

what is not included on a credit report

Answer 10

medical history

purchases not made on credit

debts for which the ind is not personally liable (debts of a business owned by individual)

Question 11

how does a credit report indicate future behavior

Answer 11

uses years of information :

whether the individual is an active user of credit
useful data for assessing his or her ability and willingness to pay off financial obligations
additional information to confirm identity

Question 12

Good credit indications

Answer 12

A “good” credit report typically shows a variety of credit and loans from a variety of lenders over a number of years with a pattern of consistent, on-time repayment.

Question 13

Bad credit indications

Answer 13

A “bad” credit report typically shows some credit and loans, several “maxed-out” credit cards, and a pattern of failing to make payments on time. There may also be evidence of short-term borrowing (perhaps to cover living expenses) and even bankruptcy.

Question 14

Min amount of information to pull a credit report

Answer 14

The minimum amount of personal information required to obtain a credit report includes full name, address, and date of birth. (If the applicant is willing to provide his or her social insurance number (SIN) that is also helpful. Be aware, however, that no one is required to give you a SIN.)

Question 15

If borrower does not have credit report because new to canada, what documents must you get

Answer 15

bank statements and/or reports
bank account history
landlord references
utility and phone/internet bill
foreign bank reports/credit reports
co-applicant, co-signor, or guarantor information

Question 16

What are credit scores sometimes referred to as

Answer 16

FICO

Technically, FICO scores are only used in the United States, and are named for the company (Fair, Isaac, & Company = FICO) that developed the mathematical model from which credit scores are derived. Both Equifax and Trans Union use the FICO model to calculate credit scores although they may use different kinds of data in the calculations.

Question 17

what is Equifaxes scores called

Answer 17

Beacon

ranges from 300 to 900

Question 18

what are trans union score referred to as

Answer 18

Empirica

which range from 150 to 934

Question 19

what is bankruptcy navigator index

Answer 19

predicts the likelihood of a consumer filing for bankruptcy within 24 months and is scored in a range of 1 – 999. The lower the score, the greater the likelihood of the consumer filing for bankruptcy.

Question 20

what is the consumer risk predictor

Answer 20

predicts the likelihood of a serious delinquency (90 days past due or worse) within 24 months and is scored in a range of 300-900. The lower the score, the greater the likelihood of the consumer becoming severely delinquent.

Question 21

What is the Equifax risk score

Answer 21

predicts the likelihood of a serious delinquency (90 days past due or worse) within 12 months and is scored in a range of 300-900. The lower the score, the greater the likelihood of the consumer becoming severely delinquent.

Question 22

5 main factors contributing to credit score

Answer 22

Payment history = 35% 
Amounts owed = 30% 
Lendth of credit history = 15% 
New credit = 10% 
types of credit used = 10%

Question 23

What are other factors influencing credit scores

Answer 23

the number of recent credit inquiries (Remember, while it is true that the number of credit inquiries can lower one’s credit score, inquiries from lenders do not typically have a major impact.)
the individual’s employment situation
fines from court judgments
tax liens
foreclosures
bankruptcy

Question 24

Credit rating 300-499

Answer 24

Very poor credit

Question 25

credit rating of 500-574

Answer 25

poor credit

Question 26

Credit rating of 575-649

Answer 26

Average credit

Question 27

Credit rating of 650-749

Answer 27

Good Credit

Question 28

Credit rating of 750-900

Answer 28

Very good credit

Question 29

what are validation odds

Answer 29

are the statistical percentage of the general population within a particular BEACON credit score range who will likely go 90 or more days past due within the next 24 months on one or more credit card or loan accounts.

Question 30

possible reason for no credit scores

Answer 30

no recent credit experience (such as a stay-at-home mother who has been out of the workforce for a number of years)
a young adult, with too little credit experience to score
no credit because of past credit problems that no longer show on the bureau (for example, a bankruptcy)
new to the country, with no credit history in Canada
out of the country for an extended period of time without credit cards or loans
simply never applied for any type of credit

Question 31

What is generally the required down payment with no credit score

Answer 31

15% and must be own money, no gifts

Question 32

what do you need to consider if applicant has no credit score

Answer 32

• why that person has no credit score

- what proof of credit history you can provide to the lender for that situation

Question 33

Possible proof for new to canada

Answer 33

• two year employment contract and acceptable credit or bank references from country of origin

Question 34

For individuals whom deal exclusively with credit unions

Answer 34

two year banking history from the credit union

Question 35

documents require for individuals with past credit issues who has started anew

Answer 35

• some form of credit history from financial institutions or a creditor that does not report on bureau
• two year history from financial institution, such as bank statements or passbook pages,
• two year history of proof of repayment experiance, such as rent payments, utility bills, cell phone payments

Question 36

ways to build or rebuild credit

Answer 36

• take out RRSP loan. most banks will give small loan without pulling a credit report becuase they own the asset while the loan is being paid
• suggest applicant secure a credit card. some credit card companies will provide a limit to whatever amount of money a client deposits with them. referred to as prepaid credit card.

Question 37

Legal Identity Changes

Answer 37

ensure to pull credit for both names.

Question 38

what does inquiries part of the credit display

Answer 38

The inquiries part of a credit report shows how many inquiries the credit agency has received from other institutions about the individual. Approximately 10% of a BEACON credit score is based on “new” credit and is gathered from the inquiries section of the credit report.

Therefore, the frequency with which credit grantors ask for an individual’s credit report can affect the credit score, particularly if there are many inquiries over a short period of time.

Question 39

what is a hard credit check

Answer 39

Inquiries made with regard to loan or credit applications are calculated in credit scoring models and do affect the credit score. Inquiries that affect the credit score are known as “hard” inquiries or “hard pulls.”

Question 40

what is a soft credit check

Answer 40

Inquiries by companies to which the individual has not applied may also appear on the credit report. These are called “soft” or “silent” inquiries, and they occur when businesses or institutions want to check someone’s credit before they offer special goods and/or services (such as a pre-approved credit card offer), or for employment purposes, or reasons other than application for credit or financing. Soft inquiries do not affect the credit score.

Question 41

what is theh delay on a credit pull

Answer 41

30 days

Question 42

why is employment history important on bureau

Answer 42

indicates one aspect of level of stability as well as amount and reliability of the applicants income stream

Question 43

Employment codes on Credit history

Answer 43

ES - Employment subject (current)
EF - Employment former (former position)
E2 - Employment second former
EC - Employment co-subject (employment of co-subject like spouse) (if in quebec this would not be displayed)

Question 44

what is a public record

Answer 44

Public records include bankruptcies, judgments, foreclosures, liens, and collections. As these are an indication of past trouble or issues fulfilling debt obligations, public records items generally reflect badly on the individual’s management of credit. If there are several public records listed in the summary, you know at a glance that this person has been, at least at one time, a poor lending risk.

Question 45

what is foreign credit bureau info

Answer 45

This information lets you know whether the person has any recorded credit history outside of the country.

Question 46

what is a trade line

Answer 46

These may be credit cards, loans, lines of credit, etc.

Question 47

Public records negative impact on credit.

Answer 47

Ideally, the public records part of an individual’s credit report should be blank. Items that may appear in this section (with the exception of secured loans) are a negative reflection of past credit management and indicate that the applicant has had serious credit problems.

Public records remain on the credit report for six to 10 years, depending on the item. If there are public records listed, the more recent the item, the more negative impact it will have on the individual’s credit rating.

Question 48

What docs needed for bankruptcy

Answer 48

• assess the reasons for the bankruptcy and ongoing effects and grab docs for that
• copy of final discharge and list of creditors as proof of discharge for the lender.

(lenders normally will not give a second chance if already bankrupt with them)

Question 49

How long does it normally take to re-establish credit after bankruptcy discharge

Answer 49

12 to 24 months

Question 50

strategies to re-establish credit after bankruptcy

Answer 50

Make regular deposits to a savings account over a period of time.
Establish a relationship with the bank or institution housing the savings account, and apply for a small loan or line of credit backed by the savings account. Then pay the loan back promptly.
Obtain a low-limit credit card, use it regularly for small purchases, and pay the balances off on time. (Remind the applicant that many inquiries in a short period of time will affect his or her credit score, so when seeking a low-limit credit card, do not apply for many cards at the same time.)

Question 51

what is an alternative to bankruptcy

Answer 51

Consumer proposal arrangement

Only availble to people who are deemed insolvent. (someone who cannot pay debts as they come due or does not have sufficient assets to pay debts)

Way better than bankruptcy. Shows willingness to repay debts

Question 52

what are collections

Answer 52

are overdue debts that have gone to a third-party collection agency. Collection records have a significantly negative impact on a lender’s impression of the borrower’s willingness to fulfill debt obligations.

Collections can be either unpaid or paid. Lenders may completely reject applications with unpaid collections showing on the credit report.

Question 53

what is a secured loan

Answer 53

one that is backed (secured) by an individual’s personal property as collateral and which has been registered with the provincial government in accordance with the Personal Securities Act. Secured loans may be chattel mortgages, registered loans, or registered liens.

Question 54

Although a secured loan is registered as a public record, is it damaging to credit?

Answer 54

No

Question 55

Info on secured loans

Answer 55

If an individual took out a secured loan in Ontario (which is a province that reports secured loans), the item will appear on his or her credit report.
If an individual takes out a secured loan in Alberta, however, the item will not appear on his or her credit report because Alberta does not report secured loans to the credit reporting agencies.
If your applicant has moved from a reporting province in the past six years, any secured loan(s) will show up on his or her credit report even though the credit reporting agency shows the applicant’s current address in Alberta.

Question 56

what are judgements

Answer 56

is a credit-related court order that instructs the credit holder to pay monies owing to a creditor.

If there is a judgment on the credit report, it means that the credit holder has been sued by the creditor, and the courts have ruled in the creditor’s favour. This means that the credit holder is ordered to pay a certain amount within a certain time frame.

Once this is done, the judgment has been “satisfied” and is no longer active. A judgment status may also be reported as “unsatisfied” or “disposition unknown” if the credit holder has not yet fulfilled the conditions of the court order.

In Alberta, judgments remain on the credit report for six years from the date the judgment was filed.

Question 57

Trade Lines

Answer 57

Open credit accounts (such as credit cards, lines of credit, car loans, and home mortgages) are referred to as trade lines or lines of trade. Trade lines have a significant impact on credit scores and are an important indicator of risk or stability to a lender.

The trade information part of a credit report shows an applicant’s purchase and repayment behaviour with credit cards, loans, and other kinds of borrowing. Trade information is reported by credit grantors such as credit card companies, auto finance companies, and retail outlets that have their own credit cards.

Question 58

what are lender priorities for trade line activity

Answer 58

Lenders look at the number and type of open trade lines as well as the length of time that each account has been open. Lenders also look for current activity and consistency in the payment history for each account.

In general, lenders prefer that an applicant has three to five active trade lines that have been open for at least two years. These trade lines should have credit limits of at least $1,000 to $1,500, with no exceeding the credit limits and consistent, on-time payments. This provides plenty of data by which to assess the person’s credit activity and repayment behaviour.

Question 59

some trade lines lenders may be cautious about

Answer 59

• thin credit: only two trade lines or fewer that have been reporting for less than two years.
• trade lines for applicants that exceed credit limits
• keeping trade lines close to max

Question 60

Trade line letter allocations

Answer 60

O - Open – those where the cardholder can draw credit as needed up to a certain limit with the total balance payable in full within a specified time frame, usually 30 days or 90 days
( American Express, furnace oil delivery accounts)

R - Revolving (open-end) – such as a typical credit card, where the cardholder can draw credit on the card up to a certain limit and then make regular payments of portions of the outstanding balance. Over time, the cardholder pays down the outstanding balance. At the same time, s/he can continue to make draws, adding to the outstanding balance. The amount owing to the credit card company is constantly in flux relative to the purchase and repayment activity of the cardholder.
(Credit cards, retail store credit cards)

I - Installment – those with a fixed number of equal payments, typical of car loans and conditional sales contracts. Borrowers make regularly scheduled payments of a fixed amount until the loan is paid off.
(Car loans, personal loans)

C - Lines of credit – similar to revolving credit accounts where the balance fluctuates as the account holder makes purchases on the line of credit and repays existing balances on the account.
(personal or HELOC, student loans)

M - Mortgage – Mortgages are also a type of credit and are structured similarly to installment accounts

Question 61

Number codes for trade lines

Answer 61

0

EITHER too new to rate; approved but not used
OR must be paid in full in 30 days

1

Pays within 30 days, not more than one payment past due

2

Takes more than 30 days to pay but not more than 60 days
Not more than two payments past due

3

Takes more than 60 days to pay but not more than 90 days
Not more than three payments past due

4

Takes more than 90 days to pay but not more than 120 days
Not more than four payments past due

5

Takes more than 120 days to pay but not yet rated “9”

6

N/A – this rating does not exist

7

Making regular payments under a consolidation order1 or similar arrangement

8

Repossession2 (voluntary or involuntary)

9

Debt has been placed for collection or has been written off, OR
Client has moved with no forwarded address (skip), OR
Client has made consumer debt repayment proposal, OR
Client has declared bankruptcy

Question 62

Other trade line symbols

Answer 62

1 A consolidation order is a court-ordered repayment schedule that combines the debts of an individual who is filing (or has filed) for bankruptcy.
2Repossession occurs when loan repayments have ceased or become significantly delinquent; the lender retrieves (repossesses) the item for which the loan was made.

Question 63

You can add notes or statements to your credit report. have to call the credit union directly.

Answer 63

• can be used for such things as identity fraud or injuries that prevented work from an otherwise spotless history

Question 64

if a credit holder has added a fraud alert on their credit report, lender must do the following

Answer 64

Contact the credit holder directly before granting credit.
Contact the credit holder using only the information provided in the consumer narrative. NOTE: This also means that the credit holder must notify the credit reporting agency if his or her contact information changes.

Question 65

what are other resources to help protect against or begin recovery from identity theft

Answer 65

Everyone on the Filogix Expert network has access to idefence identity protection products for themselves and for applicants. Some idefence products and services are free; others are not.

Refer to the D+H website for further information.
Identity theft fact and resource sheets – Office of the Privacy Commissioner of Canada website

Consumer Measures Committee Identity Theft Resources – Government of Canada website

Royal Canadian Mounted Police Identity Theft and Identity Fraud Resources – RCMP website

Question 66

Identity verification checklift credit reports

Answer 66

Name – Match the name on the credit report to the mortgage application and other supporting documentation. Double-check against government-issued photo ID.
Aliases – Note any listed aliases (AKAs). Ensure that nicknames or other names the applicant uses are explained and noted on the report and/or in the mortgage application. Check for credit reports under the alias names.
Address – Verify current address and length of time at current address. If the applicant has moved in the last few years, pull the credit report using the previous address as well.
Birth date – Compare the birth date to other supporting documentation. This will help to confirm that you have the credit report for the correct person, especially if s/he has a common name.
Marital status – If the applicant claims to be single but the bureau shows a spouse, are alimony or child support payments being made?
SIN – (If applicable.) If the SIN has been recently issued or there is an additional user of a SIN, investigate further. Remember: Applicants are not required to provide their SINs.

Question 67

Inquiry verification checklift credit report

Answer 67

Review the current inquiries. Be wary if there are many new inquiries. Request an explanation from the applicant and document the explanation in the mortgage loan application file or on the credit report.

Question 68

Employment info verification credit report

Answer 68

Ensure that the information in the credit report is consistent with the applicant’s stated employment.

Question 69

Public records verification checklist

Answer 69

Review thoroughly because items in this section are a negative reflection of past credit usage.

Question 70

Trade info verification

Answer 70

Review the status of existing trade lines and the length of time reporting.
Ensure credit limits are shown for each.
Review new trade lines. Be wary of too large a number of new trade lines.

Question 71

Credit, debt, and liabilities checklist

Answer 71

Ensure that credit cards, loans, and assets in the credit report are consistent with what is stated in the mortgage application.
Assess whether the credit report is reasonable for the age and occupation of the applicant.
Is the length of time the report has been established reasonable for the age of the applicant?
Does the amount of credit established make sense? Be wary of low “high credit” data and small loan payments when the declared income is high.
Does the credit history feasibly reflect income, employment, and/or lifestyle?
Debts and liabilities – Ensure that all applicable debts (credit cards, loans, etc.) are included in your mathematical calculations, such as debt service ratios. Ask questions about liabilities that appear on the credit report that are not declared in the loan application.

Question 72

Inconsistencies verification

Answer 72

Request explanation(s) from the applicant and document the explanation(s) in the mortgage loan application file or on the credit report. If you have concerns about the applicant’s credit report, you may want to refer the file to your broker before proceeding.

Question 73

Questions to help analyze credit history

Answer 73

Does the credit report information match the information provided in the application?
What is the credit score and why is the score what it is?
How much credit history data is provided on the report?
Where does the applicant obtain his or her credit?
If the applicant has dealings with finance companies or other non-mainstream lenders that typically charge higher rates of interest, why are these types of lenders being used? Is s/he having trouble qualifying elsewhere?
Does the applicant have outstanding credit and/or credit history at numerous institutions?
Are credit card balances paid off, maintained, or increasing? If balances are increasing, why? Is the person purchasing more or repaying less?
Are balances near or over the credit limits?
Are accounts paid on time or frequently late? If late, how late?
If there have been delinquencies, why have they occurred? When did they occur? Does the timeline match with periods of unemployment or other periods of difficulty?
How was credit handled before and after a problem such as unemployment, unexpected expenses, and so on?
How many credit facilities does the person have and how many are in use? The more credit an applicant has available, the higher the potential for problems.

Question 74

what are the 5 Cs of credit

Answer 74

Character 
Credit 
Capacity 
Capital 
Collateral

Question 75

Character

Answer 75

Among the five components of credit analysis, character and credit are related. An evaluation of character considers the question of whether or not the applicant has a willingness to repay debts and looks at his or her attitudes towards money and credit (for example, credit seeker, saver, spender, investor, etc.). Some indicators that might be evaluated in looking at aspects of character include age, education, occupation, work experience, and current residence. People who demonstrate a high degree of stability tend to be “good payers.”

Question 76

Credit

Answer 76

Looking at the applicant’s credit status (that is, credit report and credit score) shows how s/he has managed money and credit in the past. What appears in the credit report (that is, past repayment behaviour) is evidence of the applicant’s character and attitude towards money and credit. People who have been good payers in the past tend to be good payers in general. Therefore, looking at credit history helps you to make judgments about character.

Question 77

Capacity

Answer 77

Another component of credit analysis is capacity, which refers to an applicant’s ability to repay his or her debts. An evaluation of capacity considers age, employment status, income level, job stability and prospects, debt load, assets versus liabilities, etc. Capacity looks at what money comes “in” and what money goes “out,” and the relationship between the two.

Question 78

Capital

Answer 78

Among the five components of credit analysis, capital and collateral are also related. Both look at the question of what happens if the applicant can’t (or won’t) pay, which is of great concern to lenders. Capital is the amount of money (cash or invested) that an applicant possesses.

Question 79

Collateral

Answer 79

Collateral is property or assets that could be sold for cash. Obviously, there is overlap between the two. To a lender, capital and collateral represent forms of security against a loan or a degree of assurance that there is a possibility to recoup losses in the case of borrower default. The main form of collateral for a lender is the property for which the applicant is seeking a mortgage.

Question 80

Lenders 3 priorities and the 5 Cs

Answer 80

Lenders care first and foremost about an applicant’s stability and reliability because a person possessing these traits will likely be inclined to make regular debt payments. In terms of the five “Cs,” this relates to character and credit.
Secondly, lenders care about the actual ability of an applicant to make payments or the ratio between his or her income and debt obligations. In terms of the five “Cs,” this relates to capacity.
Lastly, lenders care about how they might be able to recover their money in the event that the borrower defaults. In terms of the five “Cs,” this relates to capital and collateral.

Question 81

Other questions to answer with the 5 Cs

Answer 81

nature of referral source – How did the applicant find his or her way to you? Was it by referral? If yes, was the referral source someone you know and trust? If not, does it affect your opinion of the applicant?
for purchase transactions, the emotional cause for the purchase – Why does the applicant want to purchase a property? Is it because of a divorce or separation? Is it part of a plan to earn rental or investment income? Is it because the person needs to downsize? If yes, is it for financial reasons or advancing age? Does the emotional reason for purchase affect your opinion of the applicant?