Nine percent of respondents to an August 2014 Equifax Canada survey admitted to not being entirely truthful on a credit or loan application, and 10% thought it was okay to overinflate income when applying for a mortgage. Deciding to exaggerate the amount you earn, even just a little, can have damaging consequences.
Getting caught
Even if you are concerned about your ability to get a mortgage, do not be tempted to lie about your salary. Not only will there be consequences when you are found out, but it is important to be able to live within your means. Higher mortgage repayments, based on a falsely inflated salary, will not allow you to do this.
Lying on an application is not only a question of personal ethics, it is also illegal, and you can be charged with making a false statement in writing in order to get credit.
When you sign your name to an application, you attest that you are telling the truth. Most lenders will provide you with a disclaimer to let you know that should you commit any type of fraud, you can be fined and your home may be subject to foreclosure.
Lying on a credit or loan application to make it appear that you earn more than you do could also lead you to stretch yourself too thin. The more you supposedly earn, the more likely you are to get approved for a large loan or high credit limit, and you may be tempted to use all the money granted to you.
If your repayments are larger than you can handle, you will not be able to make provision for financial emergencies and will slip further and further into debt. Granted, it is difficult to predict a car accident that prevents you from getting to work, or losing your job. In these cases, Wonga.co.za (they’re a cash loan provider) help people who find themselves in a financial tight spot, but these loans should be used in emergencies and as a short-term solution only. You will not have the means to handle financial emergencies or pay back short-term cash loans if you have taken on too much debt.
Defaulting on loan agreements hurts your credit score. In more extreme cases, you may have to resort to taking out another loan or maybe even filing for bankruptcy if the situation snowballs.
Truth is the best policy
Lenders have developed a set of standards over the years for lending money. If you fall into the guidelines for debt-to-income ratio and have a good credit score, you will most likely get a loan. Not relying on a lender’s historical expertise will get you into all sorts of financial trouble.
A common mistake is focusing on gross income (what you earn) instead of net income (what you take home). Whether you earn salary or commission, calculate your base income with commissions for the last three years and use this as a reference point. Then, consider how the economy may affect your business or job security. If your income is variable, base the figure on 75% of your past income to give you some wriggle room.
Telling the whole truth
A clean credit history is essential for securing a loan from banks, financial institutions of any kind, or other loan providers. Without good credit, it can be extremely difficult to get access to the necessities and conveniences of modern life such as a car, credit cards, furniture, holidays and even owning your own home.
Keep in mind, if tempted to exaggerate that loan providers carry out thorough and stringent checks before they approve any loan application. The credit checking systems in place are so sophisticated, that chances are, you will be found out if you lie on your loan application.
Ways to improve your credit record
- Check your credit report: It is easy to check your credit report using one of the online credit monitoring services and, if you spot anything on your credit report that needs updating or is inaccurate, ask the credit agency to investigate and amend your record.
- Protect your identity: Identity theftis one of the fastest-growing crimes worldwide. If you notice unusual activity on your credit report – a loan or credit card application – you did not make, report this urgently and make sure the incorrect information does not stay on your personal record.
- Clear your debts: Pay your monthly credit card bills and loan repayments on time. Being responsible about your debts will show potential lenders that you are able to manage your budget and are not a risk. If at all possible, pay off any outstanding amounts on credit card accounts in full. If you are having difficulties, discuss this openly with your lender and agree a schedule of payments you can afford.