Have you ever seen those “instant store credit” plans or credit cards? Helen, a client at my workplace, was telling me that she was recently in an electronics store and wanted to buy a big screen TV for her husband as an anniversary present. The payments were “only” $46 per month. And the salesperson told her it only counts as a “soft” credit inquiry, and not a “hard” credit inquiry that would lower her credit score. Who could pass that up, right? When we see a low monthly payment like that, for something we really want (as opposed to something we really need), caution and logic are often thrown aside.
Although Helen has never filed for bankruptcy, the lesson in this story is very relevant to any ex-bankrupt Canadian. As we rebuild our credit, and actually start getting approved for credit, we may start feeling smug and a little cocky. The temptation to apply for instant store credit may be too much to resist.
Even Though She Works At A Bank, She Was Fooled!
Helen works for a branch of TD Canada Trust, as a teller and a receptionist. So, she knows a bit about the credit world, but she’s not a credit or loans expert. However, she takes an interest in her credit reports and checks them periodically. In fact, she recently got approved for a car loan and and a mortgage and was feeling pretty good about that. Then one of her co-workers told her about how “easy” it was to get expensive electronics for a low monthly payment at Dumoulin (a major electronics store in Quebec, also known as Audiotronic throughout the rest of Canada). Helen told me that they provide financing through the Accord D plan from Desjardins.
Canadians Are Poorly Educated On How Credit Works
Most Canadians know very little about credit scoring and how to qualify for credit. Those who have strong credit profiles (whether by sheer luck or because they’ve actually been working hard at maintaining a good credit profile and FICO score), just keep applying and getting approved when they apply for credit. Then there are the people who know they have bad credit and eventually stop applying. I think Helen falls somewhere in between. She’s not a avid credit seeker, but she does periodically apply for credit, and from what I can tell, she usually gets approved.
But not this time. As she patiently waited in the store, expecting to go home with her brand new big screen TV, her excitement turned to shock when the application came back “DENIED.”
Approved For Car & Home Loans, Denied For Financing A Television!
What happened? She was recently approved for a car loan, and a few months before that, she and her husband were approved on a mortgage for their new home. The reason she was given for being denied credit at Dumoulin was that she has only lived at her current address for three months. Most places that issue credit like to see at least one year at your current address, some even expect two or three years.
Store Manager Didn’t Warn Her The Application Would Likely Be Declined
Helen was very frustrated and angry. She said the salesman, who claimed to be the store manager, didn’t tell her the application would be denied due to her short time at her current address. She felt the salesman should have told her before submitting the application that it would be denied for this reason. Maybe. Perhaps the salesman thought it might go through anyways. Or maybe he really didn’t care since it wasn’t his credit profile taking a hit for a credit inquiry.
Hard VS Soft Credit Inquiry
Wait a minute! Remember Helen said she was told this would only count as a soft credit inquiry? Just in case you need a quick refresher on the difference between a hard and a soft credit inquiry: A soft credit inquiry is done to verify your name and address, like when you apply to open a new bank account. The inquiry won’t show up to other potential lenders when they view your credit profile, and it won’t lower your credit score. A hard credit inquiry is done when you apply for credit. A potential lender will pull your credit profile and/or FICO score to see if you are credit worthy enough to be granted credit. Each time you apply for credit, it lowers your credit score a few points and the inquiry remains visible on your credit report for 6 years. This is why you don’t want to apply for credit too often, and when you do, only when you’re quite sure that you’ll be approved.
I haven’t heard back from Helen yet to know if that inquiry counted as a hard or a soft credit pull. I’m fairly certain it went through as a hard credit inquiry. Virtually no company will grant credit to anyone without doing a credit check – meaning a hard credit inquiry. They need to protect their interests, and just doing an address verification as a soft credit inquiry won’t tell them your credit worthiness.
Many Employees Are Misinformed
To make matters worse, many Canadians, including people who work for businesses that issue credit like cell phone companies, car dealerships and retail stores, are often slightly, or very misinformed about how the Canadian credit system and credit bureaus work. Others just don’t care. This is why you need to be extra vigilant when applying for credit.
Only Apply For Credit When You’re 99.9% Sure You’ll Be Approved
Of course, there’s never any way to know for sure that you’ll be approved until you apply. That’s why you need to ASK what the credit requirements are for being approved, or what some of the common reasons are for being denied. As the saying goes: trust, but verify. For example, if you were discharged from your bankruptcy two years ago, and you discover that the company you’re applying for credit at has a policy to deny credit to anyone with a bankruptcy appearing on their credit report, there’s no point in applying. If you know this, why lower your score with the credit inquiry, which will stay on your credit profile for 6 years?
If You’ve Just Moved, Don’t Apply For Credit
Or, like Helen, you’ve recently moved. Most places that issue credit want to see you at your current address for at least one year or more. Ask what their requirements are. If you’ve just moved, you might want to, or need to wait one year before applying for any credit. Even if everything else was perfect on your credit application, if that lender has a strict policy not to approve financing for anyone who has lived at their current address for less than a year, or been at their current job for less than a year, then don’t bother applying if you know you don’t meet those requirements.
Ask Several People To See If You Get The Same Answer
At times like this, you need to be skeptical and pessimistic. Sometimes the first person you speak to doesn’t really know the credit requirements. Some employees will actually make it up as they go along! (Believe me, this happens more often than you would think)! Ask to speak to a manager. If you still don’t get a definitive answer, then go elsewhere. If you get the answer you want, ask them to put it in writing! They may not be so sure of themselves when you ask them to do this. Or perhaps they have a brochure or some terms and conditions on their company website that outline the information you’re asking for. But, that’s likely not going to happen. Credit guidelines change and are usually kept confidential. Some employees will just ramble off something that sounds logical, or base it on their opinion.
Don’t fall for that. I used to be polite and believe what I was told until I got denied for credit that was supposed to be virtually guaranteed to be approved. Now I ask about the credit requirements. My first question is usually what their policy is on people with a previous bankruptcy, and I state how long it’s been since the discharge. That often eliminates the majority of places. If you’ve recently moved, ask how long they require you to have lived at your current address, and so on. If it seems like you’ve got a 99.% chance of being approved, then apply.
Never succumb to a salesperson or employee who says “you just have to apply and then you’ll find out.” Obviously you’ll find out if you’re approved once you apply. But explain to them that every credit inquiry you make lowers your credit score and stays on your credit profile for 6 years. That’s why you’re asking all of these questions, and will only apply if it seems very likely that you’ll be approved. Even after being so careful, there’s still a chance you could be denied.
And remember, if you’re applying for any sort of credit, like to finance electronics, a car, a mortgage, to rent an apartment or to get a cell phone plan on a contract, just to name a few, you can be sure that a HARD credit inquiry will be done. Don’t believe them if they say it’s a soft inquiry. You’re either dealing with a dishonest or misinformed employee. Both are much more common than you would expect.
Instant Store Credit Is Not Going To Happen If You Have A Bankruptcy On Your Credit Report
I will even go so far as to say the the words “instant store credit” should not be part of your vocabulary as you are on the road to credit recover after bankruptcy. As an ex-bankrupt Canadian with a bankruptcy showing on your credit reports, you are automatically cut out of many lending possibilities, no matter how good your credit score and profile are now.
The advice I would give to Helen, or anyone who is not in the position to obtain credit right now, is to try the layaway plan. Some stores, especially furniture and electronics stores will let you put a small deposit on the item you would like to purchase and make “payments” on it for a short period of time. The store will hold on to the merchandise until it’s fully paid for. You only get your item once it’s paid in full. Of course, these “payments” won’t report to your credit profile, since no credit is being issued.
But on the positive side, you’ve just saved a bunch of money in interest! Often, those instant store credit plans charge very high interest rates. You won’t need to pay interest, and you’ll be motivated to save up and pay for your purchase quickly. Of course, you don’t get the instant gratification, but when you’re an ex-bankrupt Canadian, you have to expect that you won’t have as many opportunities as someone with a strong credit profile.