Stepping on that Ladder

28 December 2017

A Firstline Securities Limited Blog by: Jody Hernandez

Owning one’s home is quite possibly the number one priority of someone who is saving and has not yet gotten themselves onto the property ladder. While most would like to purchase a property outright, it’s very rarely a possibility and many have to depend on acquiring a mortgage.

In order to secure a mortgage most lending institutions require at least a ten percent deposit.

A disciplined savings regime is important to ensure you obtain a deposit, but what other factors are considered by lending institutions when approached to lend a prospective borrower hundreds of thousands of dollars? Two important elements that most aspiring home owners overlook are existing commitments, particularly other debt payments and their credit report.

While credit reporting has been part of the credit process in countries such as the United States, Canada, UK etc. for many years, it has only been part of the process in Trinidad and Tobago and most of the Caribbean in recent years. The UK and US use a credit score as a quick indication of whether or not an applicant has good or bad credit history. I suspect Trinidad and Tobago would at some point adopt this approach as the process becomes more sophisticated. In 2004, the Automated Credit Bureau (ACB) became the first online credit reporting agency in Trinidad and Tobago. All Banks and several financing institutions such as Credit Unions are members of the ACB including Mortgage Finance Companies.

As subscribers to the Bureau, lending agencies are able to access information on a customer’s credit history/profile from each of the other member subscribers. This has enhanced the ability of these institutions to assess risk and a borrower’s capability to repay their debt.

So what information is a credit report made up of?

Your credit report is a record of how loans have been repaid over the years with financial institutions. It also records how other financial commitments such as credit cards and hire purchase agreements were serviced by the borrower.

A typical credit report will contain:

Personal Information – name, identification, date of birth etc.

Residence History – current address and time spent at current and any previous residences.

Employment History – information on current and any previous employers; the position held and the time spent in the job.

Credit Information – the various credit facilities that were granted and how they have been or are being repaid.

Inquiries – an indication as to whether and from whom, attempts to obtain credit facilities were made.

Utility and telephone companies are also becoming members of the ACB, therefore be mindful that missed and delayed payments of bills could also make up part of your credit report.

Lenders will use this information to judge whether or not the borrower will be bankable and committed to making payments.

How can you improve your credit profile?

Firstly it would be wise to get a copy of your credit report: you can access this at any time by contacting the Bureau. It’s important that you check your report to ensure that there are no outstanding payments, if there are any financial commitments that are in arrears then I suggest you make payments towards clearing them as soon as possible.

Once you have corrected your credit problem, to further improve your profile it is important to ensure that you make your monthly payments (e.g. credit card) on time. Late payments may result in late fees and/or higher interest charges and leave a negative mark on your credit profile.

If you have no payments that are in arrears but you do have many debts outstanding, you should take steps to make additional payments to clear these off so that your debt service to income ratio and your debt to assets ratio can reduce to acceptable levels by the time you are ready to approach the mortgage finance company. The lower your level of debt at the time of application for home financing, the more affordable the total debt service upon acquiring your new home is likely to be and the more the financing company will be willing to lend.

It would be wise to have a chat with a mortgage advisor before you find that desired property to make sure that you are on the right track and clear on your limitations based on income and savings etc. Don’t be afraid to have open and candid conversations with your mortgage advisor on what other steps you can take to clean up your credit profile and secure the amount you need to purchase your new home.


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