Credit Reality In the lending world, credit is king, or so they say. What this expression should really state is “He who has a good credit score is king”. So, what is a credit score and how is it determined? Lenders in Canada use what is called a Beacon score (FICO score in the US) to determine whether to give you a mortgage or not. Beacon scores are credit scores, which are determined through a complex algorithm. Beacon scores are very powerful predictors of a consumers future [bill-paying] performance. Credit histories and scores are tracked and reported by two companies in Canada, Equifax and Transunion. Lenders typically will only use one of the credit reporting companies but some will pull your credit history from both. I have seen situations where a debt has been reported on Equifax and not Transunion and vice versa. I have no idea why. Credit scores can range from 300, the lowest to 850, the highest. The final number is a composite that comes from individual ratings in five categories: payment history (35% of the rating); length of credit history (15%); new credit (10%); types of credit used (10%); and debt (30%). There are a few myths to credit reporting that I would like to address: 1) Too many credit pulls will negatively affect the credit score. This is only true to a point. If you have a number of pulls all in a short period of time, the Beacon score will go down. Equifax doesn’t know what the problem is but there must be one otherwise why would you have gone credit hunting. If your credit is pulled several times over a year, it will have no impact on your score. Be careful when financing car purchases from corner auto dealerships who may send your financing application out to five or six lenders, who then all pull your credit with negative results. 2) Mortgages appear on credit reports in Canada. Not true – mortgages do not appear on credit reports as a result of privacy concerns. 3) Equifax and Transunion credit reports are up to date. Not true – think of Equifax and Transunion as being like a newspaper. They can only report what they are told by the various debt issuing companies out there. Depending on reporting schedules, a payment on a debt you made last week could take up to several weeks to be reflected. 4) Equifax and Transunion credit reports are accurate. Again, Equifax and Transunion can only report what information is supplied to them. So you apply for a credit card and the person signing you up mistakes your date of birth. This mistake is then kept as part of your credit history with little verification. You can fix this but it can be a long process. In summary, credit is crucial but most people take it for granted and never check it until they apply for a mortgage. By then it might be too late! Please check your own credit history yearly at equifax.ca. You are allowed one free report each year. If you need help understanding the report, please let me know. Please Contact Bob Alexander For Further Information About This Commentary or To Discuss Your Mortgage Action Plan Your Mortgage Doctor Bob Alexander, B.Comm, CMA, AMP Phone: 403-875-5270 Email: [email protected] mortgagedoctors.ca #yycrealestate #realestate #realestateraena
Posted on: Mon, 17 Nov 2014 02:54:03 +0000
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