With the pandemic causing business closures and layoffs across the country, many individuals feel that their credit score has taken a hit.

Where to start?

While the situation might seem gloomy at the moment, your credit may not be as bad you think it is. The first step towards creating a practical plan of action is getting an updated credit report through Equifax or TransUnion.

If you have equity in your home, it is also recommended to do a quick analysis of your home’s current worth and how much you own in the mortgages.

Where do you stand in terms of credit?

When you have your credit report in your hand, you will see that every credit account, for an individual, is assigned a value between R1 to R9. R stands for revolving credit and the numbers 1-9 are account classifications, based on the notes provided by your creditors.

If you are between R2-R5, your credit score can recover to an R1 position if you are able to make your payments. Though, if there have been habitual late payments or an R9 rating, your credit is damaged for the next 6 years.

Where does home equity fit in?

So, your home equity is the value of your home minus the total outstanding debt registered against the title of the property. Lenders use a calculation called Loan-to-Value ratio and lend on the basis of the equity available in your home.

Hence, it’s really not about bad credit anymore. The value of your equity determines the options you have when it comes to creating a financial plan to repay your overall debt.

Many banks and institutional lenders that lend to the public will want you to have decent credit and provable income. Decent credit means a 680+ beacon score. Some of these lenders may lend on slightly lesser scores if you have more equity. You can expect to receive a loan of up to 80% of the home value, less the mortgage balance.

Trust companies, mortgage investment corporations, credit unions, and private lenders will often lend to people who have bad credit or have difficulty proving income because they mainly lend on the basis of equity. You can expect to receive a loan of up to 65%-75% of the home value, less the mortgage balance. Additionally, these lenders typically lend through mortgage brokers.

What if I owe more?

If you owe more than 80% of the value of your property (or close to it), refinancing your mortgage may not be an option for you – but that doesn’t mean its game over in terms of dealing with your debt!

If you are in a financial crisis and you can’t see a path where a lender will loan you the money to pay off your debt – you can look at other options. There are many federally mandated solutions that protect people in debt and prevent creditors from taking action against them.

A consumer proposal is an excellent example. In a consumer proposal, an arrangement is made with your creditors where they accept often much less than what you owe, over a period of 5 years. The proposal can help you keep your home, freeze the interest, cease collection action, and enable you to make a single monthly payment that you can live with.

If you are a homeowner struggling with debt, the best thing that you can do is work with a professional who can assess all the options.

This can’t happen at a bank or a similar financial institution because they strictly adhere to their predefined lending criteria. A debt consulting company, that also arranges financing, is the best way to go because they are able to present all of your options and help you choose the one that will help you deal with the present crisis while considering your future plans.

At Debt Care, we work with all types of lenders who will lend under all types of circumstances.

Contact us today for a free consultation on proposals, bankruptcies, and mortgage refinancing. Call 1-888-890-0888 or visit www.debtcare.ca