Of Prime Interest: Credit rating score is what mortgage lenders assess

Your credit can be fixed and there are still lenders willing to grant mortgages to the credit challenged.

Beacon Scores are a single number that gives lenders an assessment of your financial risk as a borrower.

Beacon scores can range from 300 to 900. The average Canadian has a beacon near 700.

Only 11 per cent of Canadians rank above 800 and it’s virtually unheard of to see a beacon near 900. All you really need is 650 to 700 to qualify for a good mortgage rate. And you require a 600 score to qualify for an insured mortgage with less than a 20 per cent downpayment.

If your score falls below 600, you are what lenders call a “B” client, meaning there are issues with your credit that banks won’t like.

If you are like one in five Canadians who fall into that category, don’t despair. Your credit can be fixed and there are still lenders willing to grant mortgages to the credit challenged.

Also keep in mind the exact score needed depends on the type of mortgage you require. For example, mortgages for the self-employed or for rental properties often require scores on the higher end. Assuming you want to improve your credit, you should know how the Beacon formulas is calculated. The main criteria are as follows.

Payment history (35%)—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 to 20 points.

Current Debts (30%)—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%)—The longer your accounts have been opened the better.  Generally you need at least two accounts over one year old.

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

Credit enquiries (10%)—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 bankruptcies or legal judgments,  the top Beacon credit score killers are payments over 30 days late, maxing out credit cards.  (i.e. using over 70 per cent of your limit) and 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% of their limit. Below 50% is better and below 30% 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.

Don’t be afraid to check your current Beacon rating at  www.equifax.com.

Of Prime Interest is provided by Verico Kelowna home mortgage brokers Trish Balaberde, Kristin Rosdal, Darwyn Sloat and Arlyne Wilson.

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