The 5 C’s of Credit: Understanding Your Creditworthiness with Sandra Landry, Senior VP MNP Bankruptcy

15-10-2024 • 30 mins

In this episode of Real Life Mortgage Solutions, Len Lane, Founder of Brokers for Life, dives deep into the crucial topic of credit with Sandra Landry, Senior VP at MNP Bankruptcy. They explore the "5 C's of Credit" (Character, Capacity, Capital, Collateral, and Conditions), explaining how lenders evaluate creditworthiness and what influences your credit score.

With a practical approach, Len and Sandra discuss what appears on credit reports, the importance of consistent financial behaviour, and tips on maintaining or rebuilding credit, especially for self-employed individuals and those with a history of bankruptcy or foreclosure.

Sandra also provides insightful advice on credit-rebuilding strategies, like maintaining long-term credit accounts, keeping borrowed amounts low, and setting up automatic payments to avoid late fees. This episode is filled with actionable advice to help you navigate the complexities of credit reports, improve your credit score, and make informed decisions about your financial future.

About Sandra Landry

Sandra is a motivated individual who strives to learn something new every day. She enjoys learning about various businesses and individuals in her community and working out ways to help them.

There are significant options open to both individuals and businesses which include credit counselling, orderly payment of debt, proposals and bankruptcy. It's important that everyone understands what those options include and it's her role as Trustee to ensure that people are able to make the right choice for themselves and their own situation.

Resources discussed in this episode:

Contact Len Lane | Brokers for Life:

Contact Sandra Landry:

Transcript:

Len 00:02

Welcome. My name is Len Lane, and I am the founder and president of Brokers for Life Inc, and we are Dominion Lending Centers in Western Canada. The topic of our podcast will be about what we consider to be Real Life Mortgage Solutions.

Len 00:19

Welcome back. We are here again today to talk with Sandra Landry, and today we're going to talk about your credit. Now, we kind of talked about your credit last time, but now we're going to talk about 5c’s of credit and what it is that you can expect to see on your credit reports. Both of those are topics that probably don't get talked about enough in high school, when they should really start teaching people about this. But today, Sandra, welcome back to session two.

Sandra 00:48

Thanks so much for having me. It's great being back.

Len 00:51

Let's just dive right in. I guess the 5c’s of credits like character, capacity, capital, collateral and condition are something that lenders look at, and as well as your credit bureau looks at, I guess, to determine what your beacon score will actually be. So maybe run us through some of those.

Sandra 01:09

Yeah, absolutely. And you're right, it does eventually flow into your credit score. So really critical for people that are trying to build. So the character, really this is your lender trying to determine creditworthiness. They want to know who people are. What is this person like that they're going to lend some money to and they're going to look at credit history with that one. They'll look at late payments. They'll look at hits that are on there from lenders, so somebody that has a whole bunch of hits from potential new lenders might raise a red flag for a lender, because they go, me, is this person panicking trying to borrow a whole bunch more money? Is something going wrong? Why are there so many people looking at this person's credit on there? They're also going to look at this person's employment history. That's part of somebody's character, what do they do for a living? How long have they been there? Do they jump around a lot? You know, if things don't go well, the lender wants to know, am I going to be able to find this person in order to actually collect and if they move around a lot, that can be harder.

Len 02:19

And strangely enough, part of our application process is what we call the threes, right? Three years of employment, three years of addresses. They want to know where you've lived as well. You know, those are key parts of the basic application on our side.

Sandra 02:35

Yeah and that completely makes a lot of sense, right? It's your lenders trying to get to know who you are based on paper only, and that is very difficult. So that's why they ask these kind of questions. I think the next one that would make sense is cash flow. When we're looking at cash flow or capacity, what's somebody's income look like? And, of course, that really comes down to, if the lender lends somebody money, are they going to be able to repay it? They'll consider that employment history. As far as if this person is employed long term, they're more likely to be able to make those payments than somebody who is on short contract work, are self-employed individuals, as I'm sure, you know, see a lot of pushback from lenders, because self-employed individuals really struggle to have consistent income. And then, of course, there's always the tax issues that can come with being self-employed, if somebody's not not cautious.

Len 03:37

And/or not wanting to pay taxes when you're self-employed seems to be the other issue, right? They probably have cash flow. And strangely enough, most of them fall into our B lender category, because they'll look at 12 months of their actual cash flow, as opposed to what everybody else is kind of stuck with. What did they report on the T1 generals? What did they show on their NOAs? Right? So it makes it a lot harder to get a regular mortgage for self-employed these days.

Sandra 04:05

Yeah, and I expect you have this conversation with a lot of folks. It's, you know, they want to not have a lot of income when they file their tax returns because they're going to have a higher tax bill. But when it comes to borrowing, that doesn't help. So they really want it to show both ways, depending on who happens to be looking at it. And that's very difficult for someone who's self-employed to make sure that they've got it appropriate.

Len 04:34

And it's kind of what the government has said to them, if you don't want to claim taxes, then you've got to go to another source of money for a mortgage in th...