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Factors of lending

Important factors of lending money

Earlier in this module you reviewed the factors that you should consider when borrowing money. Borrowing money is a relationship between you and the lender. It is important for you, as a potential borrower, to learn about the factors that lenders consider when making loan decisions.

Gaining the lender’s trust

Much of a lender’s willingness to lend money is based on the level of confidence that they will be repaid. Lenders may consider your credit score as a major factor when deciding to lend you money. Credit scores are for the benefit of lenders. Your credit score is based on:

  • whether you make your payments on time;
  • how much of your available credit you’ve used;
  • how long you’ve had credit;
  • the different types of credit products you have; and,
  • how many enquiries (or hits) are on your credit file.

It is important to understand that the way you use credit will always be reflected on your credit rating. Responsible use of credit is key to being able to borrow.

Lenders get your credit score from credit reporting agencies. These agencies collect information from lenders on the way that you use credit and then share this information.

Lenders may also consider other factors before lending you money. For example, your bank may be more likely to lend you money if you have a long-standing relationship with them.

How insolvency affects your credit rating

Your insolvency will affect your credit rating. The table below details certain insolvency timelines (for specifics, it is best to check directly with credit reporting agencies and/or provincial authorities).

How insolvency affects your credit rating

How insolvency affects your credit rating
Description

This infographic shows three people standing to the left of a large chart titled “How Insolvency Affects Your Credit Rating”. This title is written in dark blue text and the infographic has a turquoise background. Two of the three people standing to the left of the chart are debtors. The debtor on the far left of the infographic is a dark haired man with a smile on his face, and he is wearing jeans and a dark t-shirt. Slightly to the right of the dark haired man, the other debtor is a blonde haired woman with a smile on her face and she is wearing jeans and a pink shirt. Slightly to the right of the blonde woman, there is a man with light brown hair and a smile on his face. This man is a Licensed Insolvency Trustee (LIT). The LIT is wearing a blue dress shirt with a back tie and dark pants. The LIT has one hand on his hip and his other hand is pointing towards the chart titled “How Insolvency Affects Your Credit Rating” on the right side of the infographic. The chart is separated into three main columns. The first column on the far left side of the chart is titled “Type of Information”; the center column is titled “Length of Time Information is Kept on the Credit Report”; and the column on the far right of the chart is titled “Start Date”. These titles are written in white text on a black background. Under each of the column titles, there are three equal rows. The top row is shaded in blue, the middle row is shaded in red, and the bottom row is shaded in yellow.

Type of information Length of time information is kept on the credit report Start date
Consumer Proposal 3 years Typically once the proposal is paid in full.
Bankruptcy 6 to 10 years depending on the province and credit reporting agency. Generally from the date of discharge
Multiple bankruptcies 14 years Usually from the date of discharge.

Check your credit report on an annual basis to make sure there are no errors.

The only way to repair your damaged credit history is to practise responsible financial habits moving forward. Lenders will recognize this and, in time, you will see it reflected in an improved credit score. Rebuilding your credit score after your insolvency takes time, so do not give up or get discouraged!

Some lenders may be willing to give you credit immediately after your discharge or completed proposal. However, that usually comes at a high interest rate, which could put you in danger of being unable to manage debts again. Also beware of any promises to remove negative information from your credit record sooner than would otherwise be possible. By law, this cannot be done.

image of debtor with counsellor

You can discuss additional options to repair your credit rating at your in-person counselling session with your counsellor. If you have questions, write them down and bring them to your in-person counselling session.

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