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Your Credit- How do you score?

With all the recent mortgage changes, your credit score is more important now than ever.  Most Lenders rely on the “Equifax” score.  Equifax calculates a credit “risk” score out of a maximum score of 900. A score of 700 or higher is considered an excellent score and opens the doors to better interest rates and bank approvals. A generally good score would run between 660 to 724.

If you have used Creditkarma.ca to find out your score, you are accessing a TransUnion score which is not used by many lender’s but it will at least give you a reasonable sense of how your credit is showing. To be sure of what a lender sees, you really should check your own credit through Equifax (www.consumer.equifax.ca/personal/).
I do NOT recommend paying a monthly fee to “manage” your credit through Equifax unless of course you have been a victim of identity theft or have had fraudulent activity with your existing credit.

Equifax does offer the opportunity to review the credit that is showing on your personal file and this is certainly worth reviewing on an annual basis. Look for the “Get my free credit report” button on the front page of the above site. It will not give you your score, but it will show you your credit history. If you pay things always on time, you can generally assume your credit score will be good.

Let’s look at the factors that determine your credit score (100%).

  1. PAYMENT HISTORY: ~35%
    Pay your bills on time, every time. Don’t skip payments ever, even if disputing a bill. Late or missed payments are what affect this portion of your score. If your tardy at making payments, then set up pre-authorized payments from your account to insure that at least your min payment is always being made.

It is important to avoid ever having your accounts sent to COLLECTION. No lender will provide a mortgage to someone with unpaid collections. If you are having a dispute with your cell phone or internet provider for example, always pay the bill and have the fight later!

  1. USED VS AVAILABLE CREDIT: ~30%
    Another large factor in determining your credit score is the amount of debt you are carrying as well as the amount of debt in relationship to the limit of the card or line of credit you are carrying from month to month. The best option would be to use the credit and pay it down to zero each month. The 2nd best option is to use the credit, but never carry over on a monthly basis more than 70% of your limit.Most important here, NEVER exceed your limit.
  2. CREDIT HISTORY: 15%
    This section of your file details how long your credit accounts have been in existence. This score is deceivingly low. It does only encompass 15% towards the whole score, but remember If you have no or minimal credit, most lenders won’t give you a mortgage. In a perfect world, lenders will want to see at least 2 different kinds of credit established for at least 2 years with minimum limits of $2,500 per trade record. Many people don’t like using credit, and therefore avoid getting cards. I agree with the avoidance of carrying credit balances, but having credit is a necessary evil. If you don’t have any credit, then suddenly need to borrow, no credit will cause you big troubles. Always have in your personal name at least two credit cards and learn to manage them wisely.
  3. PUBLIC RECORDS: ~10%
    Those who have a prior history of Bankruptcy, Consumer proposals, or collections are considered risky borrowers and therefore this can have a negative impact on your score
  4. NUMBER OF INQUIRIES: ~10%
    Anytime an individual’s credit file is accessed for any reason, the request for information is logged on their file. The only inquiries that may impact your score are those related to credit seeking, such as applying for a new loan or credit card. on your credit in the last 36 months will affect your score.Numerous calls looking for credit from different companies is a red flag for lenders and will generally lower your score.

Your own inquiry or inquiries of your existing creditors won’t affect your score negatively.

Here are a few suggestions to maintain or help you improve your credit score:

  1. Always pay at least the minimum payment on all debts and on time.
  2. Avoid carrying balance on credit cards or at least never be above 70% of their limits.
    Carrying multiple balances on cards on a month to month basis will impact your
    score.
  3. Avoid applying for multiple cards all at once. If you are seen as a “credit seeker”, it will reflect that negatively in your score.
  4. Review your credit report at least once a year and make sure it is accurate
  5. Pay down your credit cards before you pay off loans
  6. Avoid disputes with your creditors. If you have one, pay the bill, and then have the fight with the creditor. Remember that if your bill goes into collection, it will haunt your credit score for many years.
  7. Make sure that your partner or spouse has their own credit too. Remember that no credit can be as bad as bad credit. Many times I see a spouse having a credit card thinking that it is their own, when in fact it is a secondary card of the other spouse.