In Canada, two credit bureaus are responsible for calculating credit scores. Equifax and TransUnion issue scores between 300 and 900 as a way for lenders to assess borrowers. As a general rule, 650+ is what a lender likes to see from a potential borrower. Anything below 600 is a concern for lenders and may limit a borrower’s options.
Credit scores are a mix of your current situation and your past behavior, such as missed payments. A critical factor in determining credit scores is debt. The Bank of Canada notes that Canadian household debt has been growing for thirty years. Average household debt now stands at 170% of household income.
A bad credit score can develop to the point where you can no longer get help to fix the problem. More households are carrying credit score damaging debt, and more are denied assistance.
So, what can citizens do if they need to borrow money but have a bad credit score?
Credit scores are essential across the financial industry. Yet, different lenders emphasize it differently.
The big six Canadian banks rate credit score as a significant factor in the approval for loans - this is partly business preference, and partly national legislation. The main problem with this approach is that it doesn’t focus on the main criteria for a loan. Can a borrower afford it with their current financial setup?
The problem can be even more acute for some borrowers - borrowers who are seeking a second mortgage, for example. The most common reasons for a second mortgage are to pay off outstanding bills and pre-sale home improvement. In both these instances, the borrower is going to be better off in the short term than they are today. Lending to them should focus on that and their ability to pay.
A citizen may have a period in their life where they have been financially irresponsible. So, they need to get a loan to merge and manage their debts. They will likely be turned away by the banks and left to face bankruptcy - this is where alternative lenders have made their mark. Ranking borrowers on their potential to pay means they can work with people no longer supported by the mainstream.
Alternative lending has seen consistent growth over the last ten years. Strict regulations and emphasis on credit scores are forcing lenders from the mainstream. What they find with alternative lenders is an emphasis on the role the loan will play in the borrower’s life.
Besides offering services the big banks don’t, alternative lenders compete with them. Many alternative lenders are specialized businesses whose trade is lending. They fight for customers of all types and have a range of products that most banks do not.
With searching, borrowers can find better deals with alternate lenders than the mainstream. Recent surveys show that satisfaction with alternative lending is leading to permanent change. More than half of those approved for alternative loans said they would be unlikely to return to the mainstream.
Alternative lenders offer borrowers a way to improve their financial situation.
Taking an Alternative Approach
One of the biggest hurdles to finding an alternative lender is the choice available. Unlike the big six banks, there are many different kinds of alternative lenders. It can be hard to know where to start once the mainstream lenders reject you.
Canadalend.com has a range of independent experts. They have many years of experience in the mainstream and alternative financial markets. When you talk to someone at a bank, the bank incentivizes them to sell you a specific product. Our experts will help you find the right product for you.
If you contact Canadalend.com today, we can be your guide to the many alternative lenders out there. We can help you find the product you need to meet your financial aims.