Credit Card Balances Can Damage Your Credit Score

by admin on May 21, 2010

Vancouver mortgage rates are at historical lows.As an experienced mortgage broker in BC, I see quite a few applications. The following article is a warning to those people who have come to rely on their credit cards.

The MBNA Bank of Canada will be changing the way they calculate minimum payments. The increase will be substantial for those individuals who are used to running with balances on their cards. As an example, a cardholder whose minimum payment is $185 per month will now have to pay $307 per month.

Extremely low interest rates and teaser rates encouraged people to build up balances on their cards. The trouble is if they are only making minimum payments due to the inability to pay down the balance…what is going to happen when the minimum payment is increased by 66%.

Credit card debt has been worrisome issue for the banks recently. The banks went to the Canadian government to tighten mortgage lending standards because they were concerned about the potential impact of higher mortgages and higher personal debt. Canadians have the highest consumer debt of the G20. Bankruptcies have increased dramatically in the past year. Credit card debt is another matter.

The accounts written off by the credit card companies fell marginally. This could be due to the teaser rates on balance transfers. The credit card business was the most profitable segment of the banks business unfortunately the profitability of the business has declined to the point where it is the less profitable. Low rates and increasing delinquencies are impacting the banks margins. The adjustment to payment levels will have negative affect on the delinquency and write off levels.

The mortgage payment is the primary debt payment for most Canadians. They will let the credit cards go if it comes to a choice. The implication of this is the impact on the credit score. With the new CMHC rules, damaging the credit score may prevent Canadians from refinancing their mortgages.

Vancouver mortgage rates are near historical lows. It makes sense to consolidate debt now and avoid the chance of a low credit score…

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May 21, 2010 at 10:23 am

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