With tighter regulations, credit is playing an even bigger role than ever before. There is A LOT of mis-information out there. I have attended 2 seminars with representatives from Equifax to explain it to me. Below is a very rough guideline how it is calculated. NOTE: even the rep from Equifax said they don’t even understand how exactly it is calculated as it is so convoluted and there are so many variables….(seriously that is what they said LOL)
| Payment History |
35% |
Factors in the recency of, 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% |
Considers how much you currently owe (in absolute terms and compared with 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. You generally need at least three accounts over one year old. |
| Type of Credit |
10% |
Bank loans, credit cards, and revolving credit accounts all impact you differently. |
| Credit Enquiries |
10% |
Numerous credit applications in the past 12 months is a no no. This is a big benefit of mortgage brokers, who 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% of a high credit limit)
- Seeking too much credit in a short period of time (e.g. applying for 4 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. Below 30% is best). Your credit score can jump considerably in as little as a month.
GREAT TIP – it may not be realistic for the client to come up with a few thousand dollars to reduce their balances. As such, have them call the credit agency to increase their limit. Ex – if a client has a $10,000 line of credit with $9,000 against it, have them get the limit increased to $15,000. This is a VERY easy way to keep under the 70% rule without having to spend $$$ to do so. This isn’t a good idea for those clients that use the room they have been given however as they will just put themselves deeper in debt.
What does this mean for you?
With more restrictions and smaller pool of qualified buyers going forward, it will be increasingly critical to counsel those around you about the importance of protecting their own credit. I work with credit everyday and find myself educating and informing everyday as well. I would have absolutely no problem (in fact I would welcome it) sitting down with someone you know and discussing and informing them about credit and how they can prepare and protect themselves for when they are ready to buy. Far too often I meet with someone ready to buy, only for them to be surprised / disappointed about their credit situation. It is no easy or quick fix. Often times it takes months or years to fix. In the past we have said “call me when you have fixed it” and moved on to the next client, but with a shrinking pool of qualified buyers, etc. it may be best to be proactive. I would welcome playing a role in that.
Permission was obtained by Chris to post this article. If you are interested in more information about your credit score and how best manage your finances, please contact Chris
Chris Matthey, AMP
Mortgage Agent
License# M08000692
Office: (613) 384-4000 x 243
Toll Free: (866) 384-4855 x 243
Cell: (613) 561-5850
Fax: (613) 384-4047
VERICO -The Mortgage Professionals
775 Blackburn Mews West
Kingston, Ont.
K7P 2N5
Mortgage Brokerage License #10280
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