The following is a story of how a “free” Toronto Raptors t-shirt almost cost my client his condo.

Some of you might already have your suspicions about how this story starts and finishes.

But for the rest of you, let this be a lesson in the basics of your credit score…

As a coach of a local boys baseball team, I take it upon myself to not only coach these snotty, spoiled teenagers, but to also try and instill some values into them off the field.  I’m not their Dad, their teacher, or their priest, and I’m only 10-12 years older than some of them, so I guess I think that some of the things I say might get through to them.  Whether it’s about sports, girls, school, or life, I like to give my kids a lesson here or there…

A couple of my kids are going off to University in the fall, and they were super-excited about frosh week and the new beginnings they’d experience.  We were talking about what the first week on campus is like, and among a few other pieces of poignant advice, I told them, “Whatever you do, don’t sign up for any free credit cards.”

One of the kids told me he already had a credit card that his mom paid, and the other kid said he’s only ever used debit.  But both of them were confused by my warning.

I went on to explain to them that credit card companies prey on first-year university students and rely on them as a large part of their new members, but also a large portion of their members who actually carry a balance on their cards.

Credit card companies are essentially legalized loan-sharks, since they are allowed to take current interest rates and increase them 600%.

For more on the topic of credit card companies, see my post from earlier this year here.

I told my kids that companies such as MBNA will set up booths all over campus and offer free shirts and other useless crap that you’ll never need, in exchange for simply filling out a form to see if you “qualify.”  The reality, as we all know, is that ANYBODY can qualify for a credit card.

Now whether or not the kids who get these trashy MBNA cards actually use them, carry a balance, and drown in interest for their entire university career is anybody’s guess.  Some do, some don’t.

But the effects of simply signing up for that card can last longer than you might think…

A client of mine named Dan recently bought a 2-bedroom, 2-bathroom condo in the King & Jarvis area.  It’s his first “home,” and he’s incredibly excited at the prospect of planting some roots in the city and getting out of the rental rut.

We finalized the agreement in the last week of July, and had until October 1st to get all our ducks in a row and close the deal.

Yesterday, Dan found out that he was having serious problems with his mortgage application.

Just as I said that “anybody can get a credit card,” I also believe that “almost anybody can get a mortgage.”  This is what got the United States into trouble, and while our Canadian government has enacted legislation to reduce the number of unqualified people who are approved for mortgages, it still has been known to happen.

Dan is being creative with his mortgage approval, since he is going to use the equity from his mother’s investment property as his downpayment, and effectively pay two mortgages.  The first mortgage – on his mother’s property, is a slam dunk.  But when Dan went to get a mortgage of his own for his new condo, even withthe 20% downpayment, he was having problems.

Why?

That’s a rhetorical question.

A few years ago, Dan attended a Toronto Raptors game, and saw a booth from our good friends at MBNA.  They were offering free Raptors t-shirts to anybody that wanted to fill out an application.

Dan filled out the application.

Dan got the free t-shirt.

And now three years later, Dan got the bad news.

While most credit cards require you to call and activate them, this particular card did not.  It seems that Dan neglected to stand in the corridors of the Air Canada Centre and read the contract and it’s fine print.

The card was activated in Dan’s name, and this came with a $29.00 activation fee that was also buried in the fine print (I can’t help but wonder if that t-shirt was worth $29…).

Dan never used the card, and he never paid off the “absurd” $29.00 charge.

But his credit score is terrible as a result.

For those that don’t already know, please read this IMPORTANT FACT: any time you apply for or receive a credit card, line of credit, or any other form of debt, your credit score is affected.

It doesn’t matter whether you apply for a $500 credit card and get denied; the fact is, YOU needed/wanted credit!  And the credit bureaus are made aware of this.

In addition, there is a difference between applying for or receiving a TD Travel or CIBC Gold Card, and that of a crappy MBNA card with a $500 limit and a logo of a giraffe!

MBNA both solicits and attracts the bottom-feeders, and whether you are at the top or not, being associated with these cheap MBNA cards and others like it will drastically affect your credit.

So here is my client, Dan, trying to get financing for a $350,000 condominium and it’s being held up because of a $29.00 charge on a credit card he never used, for a shirt he probably never wore, except to paint!

Back in July, Dan did his due diligence and was pre-approved for a mortgage, but that’s only through the mortgage broker, and isn’t a firm commitment from a lender.  It seems that once we got down to crunch time, and the lenders had Dans application in from of them, the fact that he defaulted on a credit card raised a serious red flag!

DEFAULT!

That’s not a word that a lender likes to hear, let alone see in a prospective mortgagee’s credit history!

In the end, Dan spent the day sorting through the mess with the friendly ‘ole folks at MBNA, as well as the lenders themselves, and the situation was resolved.

But it pains me to think about what could have happened, ie. Dan not receiving financing for the condo, and the deal falling through all because of a free Raptors t-shirt!

I find that people rarely concern themselves with their credit score until they actually need it for something.

I also find that people lack common sense.

If you see or hear about something that is “free,” are you really going that there isn’t a single drawback, caveat, or liability associated with it?

I sure hope the kids on my baseball team have a more common sense than the masses do…