Column: How’s your credit rating

If your score is below 600 there are issues with your credit that banks will not like

Of Prime Interest column

Beacon Scores are a single number that summarize your credit situation and indicates the risk you represent for the lender. The credit reporting agencies use a scale from 300 to 900. High scores on the scale are good. The average Canadian has a beacon of 680 to 700 and typically a score of 650 to 700 will qualify for a good mortgage rate.

If your score is below 600 there are issues with your credit that banks will not like. 1 out of 5 Canadians are in this boat but do not despair. Your credit can be fixed and there are lenders willing to grant mortgages to the credit challenged. A mortgage broker can work with you and offer you great advice if you are in this situation. Assuming you want to improve your credit (and who doesn’t) you should know how the Beacon formula is calculated. The main criteria are as follows.

Payment history: (35 per cent ) This also factors in the recent and number of payments over 30 days late, collections, judgments and bankruptcies. A single 30 day late payment can drop your score 15-20 points.

Current Debts (30 per cent) Considers how much you currently owe compared to your credit limits. How many creditors you owe money to and how much you could owe if you maxed all your available credit.

Age of accounts (15 per cent) The longer your accounts have been opened the better. Generally you need at least two accounts over one year old.

Type of credit (10 per cent) Bank loans, credit cards and revolving credit all impact you differently.

Credit inquiries (10 per cent) Numerous credit applications in the past 12 months is a no no. Huge benefit of a mortgage broker is they pull your credit only once for multiple lenders.

Besides the obvious (bankruptcies, judgments etc.) the top Beacon killers are:

• Payments over 30 days late.

• Maxing out credit cards. (i.e. using over 70 per cent of your limit)

• Seeking too much credit in a short period of time (i.e. applying for four credit cards in one month).

If you have a lot of maxed out cards, bring them at least below 70 per cent of their limit ( Below 50 per cent is better and below 30 per cent is best). Your credit score can jump considerably in as little as a month. The moral is, know your credit score and manage it carefully. Over 70 to 80 per cent of Canadians have errors on their credit report.

Of Prime Interest is Collaboration of Mortgage Professionals Trish Balaberde 250 470 8324, Darwyn Sloat 250 718117 Christine Hawkins 250 826 2001

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