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There are two credit reporting companies in Canada. Equifax and TransUnion. Both use what is called a Beacon score which tells you and/or lenders what credit score you have. Beacon scores range from 300 to 900 with the average Canadian being around 700. It is a common misconception that you need to be at least in the 800's to receive a great mortgage rate. In fact, only about 11% of Canadians are above 800. You need to be in the high 600's or the low 700's in order to ensure the best rates are available to you. 600 can be an ok score as long as you have no delinquencies or late payments in the past year and you can provide proof of income. The minimum score now for high ratio or insured mortgages (anything with less than 20% down payment) is, in fact, 600. If your beacon score is less than 600 you may be considered a "B" client in the eyes of some lenders and financial institutions. It is estimated that 1 out of 5 Canadians fall into this category.

Here are the things that affect your score and some ways of how to improve your credit:

About 35% is payment history:

i.e. if you more than 30, 60 or 90 days late on payments, have any collections or a previous bankruptcy this will effect your score. Being late by 30 days on a payment can drop your score by 20 points.

About 30% is for Current Debts.

All open credit facilities is taken into account even if you have lower or no balances. It's available credit.

About 15% for Age of Accounts.

The longer you have a payment history with each account the better as it shows you can pay, pay on time and pay over the long term.

About 10% for Type of Credit.

Installment credit, i.e. loans, impacts you differently then revolving credit, i.e. credit cards or lines of credit.

And finally about 10% for Credit Inquires.

The common misconception here is that it affects your score a lot more than it actually does. Don't get me wrong it stills affects it but not as much as some might think. I've been informed that if you have a lender or lenders pull more than 3 credit checks in a 6 month period it will temporarily knock down your score. This is really used as a red flag to lenders to ensure someone isn't going around applying for as much credit as possible all at once.

How can you improve on these, well...

Always make your payments on time. Never be 30 days late or more on a payment.

Don't max out your credit limits. Whether it be on a credit card or a line of credit. Having a balance of more than 70% would be considered high.

Don't apply for too much credit at one time. i.e. applying for a loan at one bank a credit card at another and a line of credit with yet another.

 

 
 
 Tony

Tony Marchigiano | Mortgage Specialist -Mortgage Sales BC Region, RBC Royal Bank | Royal Bank of Canada | T. 604-505-7109 | F. 778-737-0054

 

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