Credit and Christmas

As we get into the Christmas spending mode, I thought I would throw out my thoughts on credit cards. I know we don't live in a perfect world, so take what you can from below.

Credit card companies are in the business of making money, lots of it actually, and their money is made by charging high rates of interest on money you borrow and don't pay back within 30 days. So when at all possible, take advantage of the convenience of using a credit card, but pay the account to zero before the no interest period expires (usually within 30 days).

If you use a credit card, and can't pay the card to zero within the “free” period, make sure you ALWAYS pay the min required payment by the payment due date. As well, make sure you NEVER carry a balance on the card over 75% of the cards limit.

In Canada, all credit cards report to credit agencies such as Equifax or Trans Union. It is these agencies who track your history and rate your credit history with a credit score. In general, an excellent score is 800, an average score 675, and anything under 600 will be problematic when you need to borrow money.

If you pay the credit cards min payment past the due date, not only are you charged interest on the money owed, the credit card can(and does) report to these agencies on whether or not you paid on time. If you pay the minimum payment or more on time, you are rated an “R1”, if 30 days late an R2 etc. The more frequently you are late the greater the negative affect on your credit score.

If you carry a balance on the card over 75% of its limit (even if you pay the minimum payments on time), the credit bureaus algorithm will also use that to class you in a higher risk category, and therefore reduce your score further.

In borrowing money today, the approval of your loan or mortgage has become almost completely dependent on having a good credit score from these agencies. So it is more important than ever to be conscious of your credit habits. In my opinion, everyone should personally check their credit bureau every year or so. It is your information they are storing, and you have a legal right to know what that information is. Take a look at the links below, what they know may surprise you!
http://www.consumer.equifax.ca/home/en_ca
http://www.transunion.ca/ca/personal/creditreport/consumerdisclosure_en.page
Both Equifax and Trans Union offer a free report, and though it doesn’t show your score, it still shows you all the information they hold. A credit bureau with your score is also available, but with a cost.

So in a nutshell, live within your means. I’m not saying if you don’t have the money don’t buy it, but simply be aware that credit will always come with a cost if not managed wisely. I have seen the consequences far too many times in my business and my personal life. Use credit wisely and it can allow you to take advantage of opportunities that arise, use it foolishly, and it will impact your borrowing ability for years to come.

Broker Channel loses ING Direct

When Scotia Bank purchased the Canadian arm of ING Direct last September with a closing Dec 31, we knew that the writing was on the wall, only question was to what degree. Obviously, there is a duplication of services, and direct competition between what would now become one lenders services. ING for the last year has been one of our lowest rate lenders cutting .10 BPS off their web site rates to broker channel business, which has therefore undercut Scotia bank rates(and many other banks for that matter). We at least expected that to end with the Scotia purchase.

ING's letter to brokers stated that it's hope was that the broker channel will now funnel that ING business through to Scotia. Well the reality is that if Scotia doesn't become more aggressive with rates that will never happen.

In early 2011, ING began registering all of their mortgages as collateral, similar as to what T.D. Bank did in 2011. Brokers see and the public should see, that as a negative change, being sold to the public as easier future lending, when in fact in my eyes it is all about customer retention. Making it harder(more expensive) to the client when they try and leave when the mortgage is up for maturity.

Since the announcement of ING departing, the reality is that the other lenders in the broker channel are all lining up to get their piece of the ING business, so Scotia will likely see very little of the past ING business, unless as mentioned, they become very aggressive in rates. That being said, the reality is that Scotia may not care. ING is a no fee bank, and Scotia may be saying that the profit structure in paying brokers and aggressive rates is not cost effective, thus the decision to leave the broker channel.

Yes, we will miss ING, and in time the name may also be swallowed up by Scotia, and the public could lose a good no fee bank. Only time will tell to what degree that happens. But the bottom line is we all lose in this acquisition.

Dan :)