Latest / It's Time for Success: The Business Insights Podcast / Joni Bahm on Credit Scores & Smart Mortgage Moves
Transcript
- Sharon DeKoning: [00:00:16] Today's episode is a really special one for me, because I get to sit down with someone I've come to know and trust deeply through our BNI group, Joni Bahm. A mortgage broker who has quietly become one of the most impactful people in my circle when it comes to helping people make smart financial decisions. To be honest, before I met Joni, I didn't even know what a mortgage broker did. In fact, I'd never even heard of them. You're like a quiet superhero. But since getting to know Joni, she's helped us purchase our condo here in Lloydminster, which now we use as an Airbnb. She's also helped both my niece and my son, Ashton, buy their very first homes. Joni did more than just get them a mortgage, she looked deeper. With Ashton, for example, she noticed that he was struggling a bit with his debt ratio. Like many young adults, he had no idea how much a poor credit could affect him. He had taken on a car loan with high interest due to bad credit, and even though his score had improved over the years, he was still paying way too much. Joni dug into the details, gave him the guidance he needed, and helped him free up his debt load. Now my son and his wife Ashton, yes they have the same name, are proud homeowners. Something a lot of people don't realize, working with a mortgage broker like Joni doesn't cost you anything. Maybe I'm wrong and maybe you have to clarify that. She's paid by the banks, not by you. I'll let her explain a little bit more of that as we get going. Whether you're an entrepreneur, a first time buyer, or just someone wanting to understand your credit a little bit better, this episode is packed with practical knowledge that most of us were never taught. Joni, thank you so much for being here and for stepping out of your comfort zone, which I know you're stepping out of your comfort zone to share your knowledge with us today. Joni Bahm: [00:02:00] Thanks for inviting me, Sharon. And yes, totally out of my comfort zone. Sharon DeKoning: [00:02:05] Okay, today we're going to talk about understanding your credit score. I did not realize the huge impact. Nowadays it's quite simple to keep an eye on that with different apps, so you can keep your pulse on those credit scores pretty readily. First of all, let's talk about what a credit score is and why it matters. Joni Bahm: [00:02:28] A credit score in Canada, it shows if you're making your payments on time, it shows if you're maxed out on your credit, all of that kind of stuff. It shows your credit worthiness to lenders. In Canada, it's between 300 and 900. Those are the scores that you're going to be in between. We want it closer to 900. They actually call that the unicorn because it doesn't happen very often, but that's what we're looking for. Sharon DeKoning: [00:02:54] You're looking for 900? Joni Bahm: [00:02:56] Yes, 900. Lenders, when you're looking for a mortgage, they like to see it over 650. Just a heads up for that. In Canada, there's two credit reporting agencies. There is TransUnion and Equifax. Equifax is more what most lenders use. A lot of them check both and you'll find that sometimes something will be reporting on Equifax and not on TransUnion or vice versa. So the scores might be a little bit different on each, and it's surprising. Sometimes it's 100 points different. Sharon DeKoning: [00:03:26] That's a lot. Joni Bahm: [00:03:26] Yeah, absolutely. Sharon DeKoning: [00:03:28] I just had this conversation with one of my team members, talking about what's actually recorded as a credit score. Do they take different things for credit score? For example, your phone bill would be something that you would have as a credit score. If you don't pay that bill, you'll get dinged. So do they record different things or are they always the same on both platforms? Joni Bahm: [00:03:46] No, they do report differently. Some big banks only report to either TransUnion or Equifax. That's one thing. Some phone bills do not report to the bureau and others do. And it is so important to make the phone bill on time. It dings you hard if you're at all late. Sharon DeKoning: [00:04:04] I think that, talking with one of my team members here, she has friends, she's just young 30s and she said a lot of her friends say, "Whatever, I'll pay the $3 interest", but they don't realize the repercussions. $3 is minor compared to what it's doing to your credit rating. Joni Bahm: [00:04:23] For sure, lenders will look at a credit report. When we look at it, it's kind of neat because there's numbers, it goes 1-9. You look at the credit bureau and there's all of these lines all across, they're all ones. That means that they've always made their payment on time. If it's two it means that you're 30 days late. If it's a three, you're 60 days late. If it's a four, you're 90 days late. You might have missed a telephone bill, maybe you're 30 days late, it's going to show up there. Lenders are going to say, "Why was that late?" A lot of times if it's just a random one, it's not repeated, you can just explain it. But I firmly believe that people should be putting it as an auto payment so that it automatically gets paid and you're never late. Sharon DeKoning: [00:05:11] We talked about what counts as a good score, 900. Joni Bahm: [00:05:19] Honestly, 900 is a stretch. I've been doing this for 16, 17 years. I think I've probably seen maybe ten. It's very hard to get anything over 750, which is great. Sharon DeKoning: [00:05:33] Interesting. We were talking about it before, and now I'm concerned about it because I told my kids to download Credit Karma. It's an app on my phone that I use to check my score every day. Some people think that it affects your credit score. Can you explain how that works? Joni Bahm: [00:05:55] If you're checking your credit by Credit Karma, there's Borrowell, there's another one, those are all free. Credit Karma is based on TransUnion. Borrowell is based on Equifax score. Every time you check it, if it's you personally, it's not going to affect your credit score at all. If you have someone else check it, it will. If you go to a bank and they check it, sometimes they say 'soft checks', but if you're applying for a vehicle loan or something like that, it'll affect it. Equifax and TransUnion have changed it slightly over the last couple of years, where if you're shopping for a vehicle and you go to multiple dealerships and you have multiple credit pools within a very short period of time, it's counted as one one credit pull. Before, it used to ding you every single time they pulled, now it doesn't. I could be wrong, but I think TransUnion is a two week span, and I want to say that Equifax is closer to a month or 45 days. Sharon DeKoning: [00:07:00] Look what happens if you use this card, or this card, you go to different places and you get dinged. That makes sense. We talked briefly about paying your bills on time, but what else can start a healthy credit habit for our listeners today? Joni Bahm: [00:07:19] There's quite a few. Keep your balances lower. They say under 30% of the utilization. So if you have a $1,000 limit on a credit card, try and keep it under $300. You can use it and just pay it off. They want to make sure all of your payments are on time, obviously. No collections, bankruptcies, anything like that. Having a long credit history, the longer the better. Especially if you have certain cards that you've had forever, keep them if you can. Because it shows that you've kept the card, you're in good standing with the lender, that's a good thing. When you go to get a mortgage, they usually like to see two credit lines for at least two years. It could be a vehicle loan, it could be a credit card, that type of thing. That's another thing, they like to see multiple different types. Not just a whole bunch of credit cards. They like to see a vehicle loan and a credit card and things like a student loan, so that it's a variance. Sharon DeKoning: [00:08:16] Interesting. That's funny, because when you go into debt ratio, I feel for the younger people right now. Say they have a vehicle loan, but then your debt ratio is out of whack to buy a house. Joni Bahm: [00:08:30] Yes. A lot of people like to have higher vehicle payments. They like to get it paid off sooner. But it does hurt when they go to buy a house because you're looking at how much you make compared to how much you paid per month. Sharon DeKoning: [00:08:42] For example, if they had a vehicle loan for two years with higher payments, can they go back in and refinance that to lower their payments? Joni Bahm: [00:08:53] I could be wrong, but I think it's better to do it the other way and take it out for a longer period of time and then make extra payments. Then on your credit bureau, it shows the payments are lower. Sharon DeKoning: [00:09:05] So if they're thinking about getting a house in a couple of years, but they have this vehicle payment, make extra payments to it, but leave your obligations lower. One thing as an entrepreneur I find, for example, this is in my case. I bought flooring here for work and it was a great deal through one of the flooring companies. Fabulous deal, there's no interest on it. I have 12 months to pay for this flooring, which is brilliant. But it's on a credit card that I wasn't picking up at first. It's a credit card, and that credit card is full. Even though it's for my work, it shows up on my personal one. Joni Bahm: [00:09:47] A lot of times it will. Even vehicle loans that you buy under the company, quite a few of those, unless you dive right into it, you will have a personal guarantee on it. If you're an established business, sometimes you can get away without it and it'd just be on your business, or from your business. But a lot of times you have a personal guarantee. Sharon DeKoning: [00:10:09] That I noticed because it was full, so then I'm not at my magic number, my 30%. It was like it moved me up and my credit score dropped. Joni Bahm: [00:10:24] As long as you're doing everything else right, it should bounce up and eventually it'll come back up. Sharon DeKoning: [00:10:32] Anyways, just something to be mindful of. Sometimes it does overlap. My vehicle loan at that time was through my personal as well. Surprising things that impact your rating. What things that you would never think about, is there anything out there that you can think of that would impact your ratings? We talked about phone bills, we talked about student loans that will show up on there. Is there anything else that you wouldn't think about that would affect your credit rating? Joni Bahm: [00:11:03] Student loans are kind of unique because when you're still going to school, it's showing as a zero payment. Even though you have a balance, you're not in repayment. Each lender has a different way of calculating that. For some it's 0.5% of the total amount, all the way up to 1.5% of what you owe. It's kind of neat that way. Something if you're ever applying for a mortgage, each lender is a little bit different. Something else that really affects credit scores that I'm finding more and more, people feel like they don't want to have a credit card. It's not that they have bad credit, but because they have no credit, their credit is dropping. Sharon DeKoning: [00:11:46] That's happened to my kids, they have no credit. Joni Bahm: [00:11:50] Right, absolutely. And there's some that, if they've had credit issues in the past, they're like, "No, I don't want a credit card", so they have nothing to report. Then there's nothing building their credit score, there's nothing to say they're back on track. Sharon DeKoning: [00:12:06] Nowadays, there's so many of those debit/credit cards so they're using that instead. Say their credit score is terrible, what's the fastest avenue that they could use to get their credit score back on track? Is there somewhere they can go to help with that? What do you suggest? Joni Bahm: [00:12:31] That's another good point. I've had quite a few clients come to me, they wanted to get a mortgage and they went to credit counseling. Credit counseling is portrayed very similar to a bankruptcy or consumer proposal. So be very careful when you're looking at stuff like that. When you're looking at rebuilding credit, any collections have to be paid. They have to be repaid, you can't just wait for it to drop off unless you're going to wait seven years. It's going to be there for seven years. You're going to want to get a credit card to help rebuild. There's a gentleman by the name of Richard Moxley from Calgary. He owns a business called The Credit Game. He's fantastic, this is his total area of expertise. I follow him regularly on Facebook, he's absolutely fantastic. He did some comparisons, and surprisingly enough, credit cards that were some of the top ones for rebuilding credit were Canadian Tire and it's called Neobank. Isn't that crazy? Sharon DeKoning: [00:13:37] That is so crazy. Joni Bahm: [00:13:38] I've had some people that were trying like my son, when he was just starting out and wanting to build credit, I wanted him to have a credit card early so he had applied for Capital One and Canadian Tire. Capital One said, "You can have a $300 secured card" Where you put the money on and then you use it, then you have to put more money on. Canadian Tire was like "Here's your card." It wasn't that it was a higher balance or anything, it was just easier to operate. Richard has done the math, done the checking, they report to both credit bureaus, which is huge. He really liked them. Sharon DeKoning: [00:14:14] Interesting. Rebuilding, just be smart. It takes time. Joni Bahm: [00:14:19] It does. For credit cards, make sure you make at least the minimum payment. Even if it's $10, you want to make sure that's on time. Every single credit card you can set up for online banking, where it automatically comes out of your account. Even if you're working in camp, or you just have a bad day and you forget, you can make sure that payment is made. You don't have to worry about it affecting your credit. Sharon DeKoning: [00:14:41] If I'm applying for a credit card, I'm applying for a loan, I'm applying for a phone, is there anything that really dings your credit score more than something else? Or are they all consistent? Joni Bahm: [00:14:54] I don't know that for sure. I think it's probably pretty consistent. A credit pull is a credit pull. Sharon DeKoning: [00:14:59] It's a few points, it's not dramatic? Joni Bahm: [00:15:02] It was Richard that said, "If you don't pull your credit regularly, it's in between 3 to 6 points, how much it will affect." Pretty minor as long as you don't pull it regularly. If you're trying to rebuild credit, don't go and apply for a vehicle loan and apply for a credit card. Don't do all of that, just get a credit card for now and start rebuilding. Sharon DeKoning: [00:15:23] I do recognize you're a mortgage broker and you're not a business. I guess there's two different mortgage brokers. Do you know how personal credit affects any business loans? Have you come across anything like that? Joni Bahm: [00:15:36] Not for business loans per se. I see the other way. If people have business loans and they're applying for a mortgage, I've seen that. It's tougher because for that you can have a vehicle loan that's a business loan. It's on your business finances, but some lenders won't take that off. Sharon DeKoning: [00:15:56] So that would be the situation that I talked about with my flooring. It's showing as my personal. Because I do want another condo, so that will affect because it's on my personal. Joni Bahm: [00:16:07] Yeah, absolutely. Sharon DeKoning: [00:16:08] Interesting. Being an entrepreneur, they say it's great. We talked about how to rebuild, or to even create, a credit score if you don't have one. And we talked about how not having one is just as bad as having a bad one. The first couple steps for that is, like you talked about, maybe getting a credit card to get yourself a credit score. As a mortgage broker, tell us a little bit about how you work versus going to a bank. Because before I met you, I would have just gone to my bank. What they say is golden. I was really impressed, I didn't even understand that different banks have different criteria for loans. Is that correct? Joni Bahm: [00:16:56] I actually had a gentleman, and I laugh because I think he did a review for me. He'd never heard of a mortgage broker before. He was going bank to bank, and each time he had to do another application, he had to send in all the documents, and he was just exhausted because he would have to answer the exact same questions with each bank. I have access to 30 different lenders. I enter the application once and then I could send it to all 30 lenders if I needed to, usually with one credit pull. Sometimes one lender might need to pull their own, credit unions have to do that. But other than that, I have all of the information so the client doesn't have to do it. I do it for them. Sharon DeKoning: [00:17:42] That's awesome. So if he went bank, to bank, to bank, that's a credit pull, credit pull, credit pull. Also I know because I got to know you, you know right off the get-go what bank will go to bat for you. You have 30 different vendors to send it to. Everybody has different situations. At our BNI meetings you had talked about different banks doing different things. Joni Bahm: [00:18:03] Especially the self-employed income. Some allow us to gross up the income by 15%, some allow us to do certain add-backs, some allow us to do a stated income where we can just state the income for a certain amount. Each lender has their own guidelines. And yes, it is governed by Sage and CMHC if you're putting less than 20% down, but they each have their own interpretation of what they'll allow. It's my job to source that out and figure out which one works best for the client. Sharon DeKoning: [00:18:29] Let's talk a little bit about refinancing. We had to have some high interest over the years. People right now are coming to where they can renew their mortgage and they would just do it with the same bank. But why? Can you explain how that works for you? Joni Bahm: [00:18:45] There's renewals and then there's refinances. Renewal is when it comes up for renewal and you're not wanting any extra funds, you just want to renew your mortgage and keep everything the same. If you don't shop around and make sure that you're getting the best interest rate, you might sign for a percent higher than anywhere else. It usually doesn't cost you anything to transfer your mortgage to the next place, because the next lender is just excited to have you come on. They'll pay the legal fees, they look after you. If it's an actual refinance, if you have enough equity in your property where you can maybe absorb or consolidate some of that debt, you can put that into your mortgage and then you're paying a lower interest rate, which saves you money in the long run. Because then you could pay off a credit card. Yes, you are putting into your mortgage so I highly recommend making extra mortgage payments to get it paid off sooner. But that definitely is an option too. And once again, when it comes to refinances, rates are all over the place. Rates aren't everything, but it does absolutely make a difference. Sharon DeKoning: [00:19:51] Absolutely it does. You know what banks have better rates and stuff like that so you're able to work with the customer. Best tips for someone unsure where they stand on their credit rating. What do you suggest to these people? I want to really stress here, for me personally and for my kids and for my team here, stay on top of your damn credit rating. Holy doodles people, it's so important. For you, what tips do you suggest? How do they find out what that is? Joni Bahm: [00:20:21] I want to tell a little story, if that's okay. I had a client, he was a AAA client. He was absolutely fantastic. He came in and he had everything in a row. He had all his documents, organized everything. He knew he would be approved. So we were going through, and one of the last things I do is I pull their credit. I do it while they're there so that they can see. His credit score, when he pulled it last in the summer, a year ago, it was 800 and some. When I pulled it, it was in the five hundreds. It floored me, and I can usually handle things pretty well. He's like, "I don't understand." In the course of about seven months, someone had opened up a credit card in his name. We're Alberta based, they were in Ontario or Quebec. It was a $14,000 credit card, they racked it up in one month. Then they just didn't pay it. Because the credit card was registered to a different location, a different address, he had no idea. He didn't have any credit card bills come to his name or to his address. Joni Bahm: [00:21:32] He didn't have any phone calls, nothing. He had no idea. Someone had used his name, identity theft, so it took him a very long time to get that fixed. His credit score jumped right back up, but it's so important that people are checking that. I was just about sick for him, he was just about sick. It was absolutely awful. He got it dealt with, he talked to the cops, he did everything he needed to do. It worked out well, but check your credit. Absolutely check your credit. Something else, if you're thinking about cosigning for someone, just know that if they don't make a payment or if they run up a bill, it's going to affect your credit. Set up your automatic payments. Don't apply for a whole bunch of credit, because every time you're applying, it makes it look like you aren't able to handle the credit that you have if you're repeatedly asking for another credit card. That's probably about it, I think. Sharon DeKoning: [00:22:36] I have a little story for myself. I went to Walmart. The lady says, "Do you want a Walmart card?" I'm like, "No, I don't need another card." She goes, "But then you get X amount off on your purchase." I'm like, "Does this bother my credit rating?" She goes, "Whatever." I'm like, "Fine, let's do this." So I signed up for this stupid Walmart card and it did affect my credit score. Of course it's going to, Sharon, you are dumb. It's a credit card. Anyways, it's very minimal. But like I said, if you don't need it, don't get it. I didn't need it, I was just wanting to shut her up and move on. Joni Bahm: [00:23:20] Sometimes it's not a bad thing, just don't do it all the time. Sharon DeKoning: [00:23:24] Any advice for any young entrepreneurs or first time buyers? As a young entrepreneur, everything that they purchase will go against them personally on a credit score, because you don't have your business established yet. I can speak for myself, because I was a young entrepreneur. It's hard getting finances if you're just starting up. It's very hard, and it makes it harder if you don't have the proper credit score. So just be mindful. If you're wanting to be an entrepreneur someday, these are my two bits, you have to manage your credit score right off the get-go. You have to have a good credit score. It does affect your business and any growth that you want to do to create a business. Be very mindful of your credit score. Whether you want to buy a new house, whether you want to start a business, your credit score affects everything. Joni Bahm: [00:24:22] It really does, absolutely everything. To the interest rate that you're going to get, not just on mortgages and vehicles but on credit cards. Just be really careful, make sure you make your minimum payments. That's probably the big one. Sharon DeKoning: [00:24:38] And set up automatic payments if you can, so you don't miss them. Joni Bahm: [00:24:41] Absolutely, things happen. If something happens and for some reason you absolutely cannot make the payment, call the credit card company, call the vehicle place and give them a heads up. It's not ideal by any means, and it probably isn't going to help, but you got to try. Sharon DeKoning: [00:25:03] Perfect. Any final tidbits of advice before we sign off? I really appreciate you joining me today, by the way. Joni Bahm: [00:25:10] If people have questions, just tell them to reach out to a mortgage broker or a financial planner, someone to ask the questions. I love chatting with people over their credit and helping them out. It might not be, you can get approved right this minute, but let's work towards it and get them to where they need to be. Sharon DeKoning: [00:25:31] That's something I should mention. Because I know your history of helping. Because of BNI also, you get very attached to young people and help to build their credit for their first home. That's really cool because that was my niece's scenario that you guided them. "You're not going to get one right now, but let's aim for a year and this is what you need to do" kind of thing. Joni Bahm: [00:25:53] Do you know how exciting it is when it actually happens? Sharon DeKoning: [00:25:55] Oh my goodness, I couldn't even imagine. That must be so rewarding. Joni Bahm: [00:25:59] Absolutely. Sharon DeKoning: [00:26:00] Thank you for being you, I really appreciate you. Okay everybody, thanks for tuning in for our podcast today. Joni, thank you for joining me. I really appreciate it, and hopefully some people out there listen to what we say. Watch your credit score, be careful with that. Thank you, Joni.