Imagine the anxiety of watching your credit score unexpectedly plummet after spending your entire adult life maintaining good credit.
Now suppose this credit decline blocks you from getting a mortgage on the house you planned to buy. That’s precisely what happens to mortgage applicants all across the country with surprising frequency.
All too often the culprit is unpaid phone bills. In some case's cellphone providers send accounts to a collection agency after being just more than a month late. That can cause credit score to drop like a lead pickle, approximately 80 points (out of a theoretical 900) virtually overnight.
It never should happen that way or should it? Collections are meant for people who can’t or don’t want to pay their debts right? But sometimes, for one reason or another, people honestly don’t know they’ve missed a payment. Reputable creditors make bona fide efforts to contact debtors for payment before taking this extreme measure. Sometimes that does not happen.
I see this time and again. For most borrowers, it’s just a simple oversight. But as mentioned above these case's show an unnoticed cellphone charge can spell credit-score disaster. When you cancel your account, some phone providers stop automatically billing your credit card and e-mailing you outstanding charges. How thoughtful of them!
If you’re applying for a mortgage, missing a cellphone bill can sometimes kill an approval. In a lot of cases an item such as a collection can knock your credit score below the minimum that is needed for the mortgage and interest rate you want.
Once you find out about the credit damage, it can became an epic battle with the company. Convincing unsympathetic customer service reps that their employer made a mistake is like persuading Hillary Clinton to vote for Donald Trump.
If you can negotiate something with the company that will always help, maybe downgrade your debt to a late payment for example. If you can do this and get them to update your credit report quickly you might be able to get your lender to see that you are a good risk and you made a mistake.
Worst case, if you have a big enough down payment, you can always get a mortgage from a lender that doesn’t care about your score, or cares less. But you’ll have to pay a much higher interest rate. We’re talking thousands of dollars in extra interest here, thanks to an innocent mistake.
If you’re going home shopping after cancelling your phone service, do yourself a favour and confirm your zero balance in writing.
Four more tips to avoid credit score drama:
- Do you pay bills from your credit card? If that card number changes, notify the company right away to avoid missed payments.
- If you have to argue with a creditor about their mistake, always record the call.
- Whenever you move, make it a habit to contact Canada Post. Ask them to forward your mail to the new address for six months.
- Prevent credit surprises by checking your score before you apply for a mortgage, and at least 90 days before your closing date. You can do that here.
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