What Debt Means for Your Credit Report

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Debt is not a topic that most Canadians like to spend much time thinking about. While taking out loans for education, to purchase a new car, or simply to cover an unexpected expense is a normal and even necessary part of life, debt itself is often highly stigmatized. We may rely on it for many aspects of our material wellbeing, but there is still a pervasive sense that falling deep in debt is a personal failing.

This has some unfortunate cultural side effects, chief among which being the fact that many people are not aware of how debt really works, or of the tools available for managing it responsibly.

This article will explore the relationship between debt and your credit report — one of the most significant ways that a heavy debt load can negatively impact your life — and provide some advice about how a debt consolidation mortgage loan or a 2nd mortgage can help mitigate this problem.

Debt, Credit Scores, and Collections: What You Need to Know

A credit score is a tool used by banks and other lenders to determine whether or not a person is likely to repay the money they owe. Credit bureaus like Equifax receive information about borrowing and payment habits every month, and generate a three-number score based on metrics related to how much a person borrows and how quickly they pay that money back.

Your score determines how likely you are to be able to take out loans or apply for credit cards or lines of credit, and having delinquent accounts can have a seriously negative impact on how credit bureaus rate you. If you have debts in collection, it will make it nearly impossible to access credit in the future.

In addition to the damage have debts in collection does to your credit score, it is also deeply distressing experience in its own right — creditors are empowered by law to pursue a range of different tools to recover their money, including:

  • Calling you at home and work
  • Sending regular emails and voicemails
  • Contacting your employer, family, or friends

After six months of trying to recover the money, a lender may turn your debt over to a collections agency or to a third-party debt buyer. As soon as your debt goes to collections, this will be registered on your credit report, and can cause massive damage to your score.

bridge financing mortgage loan

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What to Do If You Have Delinquent Accounts

Getting a phone call from a collections agency is an uncomfortable experience, but the worst thing you can do is ignore it: simply not answering the phone may seem like a short-term solution, but if you ever need to get a loan again, nothing looks worse than failure to repay.

The most important thing to do in this situation is remember that avenues like a bridge financing mortgage loan are specifically designed for helping homeowners use their home equity to secure debt consolidations loans to pay back what is owed so they can get their financial lives back on track.

While it may seem counter-intuitive to deal with delinquent debts by taking on more debt, the key thing to bear in mind is that using borrowing tools that leverage your home equity, like getting a 2nd mortgage in Ontario or a home equity loan, are a prudent way to deal with more immediate concerns.

Furthermore, when you apply for a loan through a mortgage broker like Burke Financial you have access to a wide range of lenders who can offer competitive interest rates. This means you can replace a high-interest loan that is already in collections with a significantly lower-interest loan in good standing. You can also negotiate the terms of the loan to secure lower monthly payments to help ensure you don’t fall behind again.

Burke Financial is committed to finding you the best debt consolidation loan in Canada regardless of your credit score, and can help you unlock the funds you need within days of completing the application. We also advocate for and negotiate on behalf of our clients, meaning that when we’re in your corner, you don’t need to go through the anxiety-inducing experience of communicating with your creditors.

The bottom line is that if you are exhausted by phone calls and emails from lenders or collections agencies, the solution might lie within the value you’ve built up in your home. Using a bridge financing mortgage loan, a 2nd mortgage, a debt consolidation loan, or a home equity loan, you can make the problem stop this week.

Practically speaking, debt is an unavoidable aspect of modern life: if you aren’t independently wealthy and you want to get an education, purchase property, open a business, or buy a car, you’re going to need to take out some form of loan or another.

Furthermore, the coronavirus pandemic has made us starkly aware of the fact that even people who have made the right financial decisions at every step of the way can find themselves in an uncontrolled debt spiral through no fault of their own.

Instead of feeling shame about unpaid loans, or falling into the trap of thinking that you’ll be able to set everything right on your own if you just work hard enough, it is important to try to approach the problem analytically. How can you minimize the impact of your debt on your credit score, and what resources are available for putting yourself on a more sustainable financial footing?

At Burke Financial, we work hard to provide long-term debt consolidation solutions for Ontario homeowners who want to unlock the financial resources available to them so they can move forward on the path toward debt freedom.

The first step toward doing this is getting your credit score back in shape, so if you think a second mortgage could be right for you, get in touch with us to explore your options today.