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 happened to yours truly, and it happens to mortgage applicants all across the country with surprisingly frequency.
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All too often the culprit is unpaid phone bills. In this author's case, my cellphone provider sent my account to a collection agency after being just more than a month late on its cancellation fee. That caused my credit score to drop like a lead pickle, approximately 80 points (out of a theoretical 900) virtually overnight.
It never should have happened that way. Collections are meant for people who can't or don't want to pay their debts. 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. That didn't happen here.
As a mortgage broker, I see this time and again. For most borrowers, it's just a simple oversight. But as this case shows, an unnoticed cellphone charge can spell credit-score disaster. By the way, I learned the hard way that 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 my case, the collection knocked my credit score below the 680 minimum that I needed for the mortgage and interest rate I wanted (prime minus 0.80 percentage points). The lender essentially had to make an exception to get us approved.
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Upon realizing the credit damage, it became an epic battle with the cellphone company. Convincing unsympathetic customer service reps that their employer made a mistake is like persuading Hillary Clinton to vote for Donald Trump.
After spending a dog's age waiting on hold, "negotiating" (i.e. bickering) and escalating to supervisors, the phone company finally agreed to correct the credit report. It changed its "unpaid collection" rating (which is bad) to a 30-day late rating (much less bad).
I had to speak to two supervisors to ensure they'd report the correction to the credit bureau quickly. That was key because creditors routinely send data to the credit bureaus only once a month, and the closing date on our house purchase was just more than a month away.
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.
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I share this saga in the hopes of saving others some grey hair. It was a maddening lesson in how phone-company practices can demolish your credit well beyond reason. 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.
Robert McLister is a mortgage planner at intelliMortgage and founder of RateSpy.com. You can follow him on Twitter at @RateSpy.