I am surprised that we don’t teach this is school. Many people I talk to have no idea how their credit report affects them or how their credit score is established.
If you are interested in buying a home and are in need of a mortgage, lenders like to see that you have 2 years of established credit. They typically like to see you have 2 different accounts for 2 years each, such as a:
1) Credit card- VISA, Mastercard, American Express, Capital One, etc…
2) Personal unsecured line of credit or a secured home equity line of credit.
3) Loan- Student loan, car loan, RRSP loan, personal loan, etc…
4) Store card- Sears, The Brick, Future shop, The Bay, etc…
Your credit score helps creditors determine how much of a risk you are and how likely it is that you will make your payments. It’s a complex calculation and the scores range from 300-900. The average Canadian adult has a score near 700. Lenders typically like to see scores above 650 for the best rates but I have seen many exceptions. The breakdown of your credit score is derived from 5 components and no one knows the exact calculation (except the inventor), however here is a rough estimate:
1) Payment History 35%- Calculates how recent you made payments, number of payments, late payments, collections, judgements and bankruptcies. If you have missed a payment, don’t worry time heals all.
2) Current Debts 30%- How much of your current credit you are using, if you are using more than 75% of what’s available to you it tends to lower your score. If you are over limit on any of your accounts, it significantly lowers your score. It’s ok to use the credit available to you, if you are going to be applying for a mortgage it’s best to pay down your debts that are over limit or close to it before you apply.
3) Age of Accounts 15%- How long you have had your accounts for, the longer the better. The accounts that are open still help your score, where as the ones that you close no longer help your score. Credit cards are great because people usually keep them for long periods of time, whereas leases and loans are paid out after so many years and your accounts are then closed.
4) Types of credit 10%- Different types of accounts affect your score differently. Revolving accounts such as credit cards where you only have to make the minimum payment and it’s up to you how long it takes you to pay it off, will impact you different then a loan where your payments are the same for a certain amount of time.
5) Credit Inquiries 10%- How many times your credit has been pulled in the past 12 months. If you have too many inquiries it tends to lower your score. One of the benefits of working with a mortgage broker is they only have to pull your credit once and they can shop all their lenders.
Even if you have been bankrupt before and had no mortgage involved in the bankruptcy you can still qualify for a mortgage. Once you have been discharged for 2 years and have 2 active accounts for a minimum of 2 years, you can qualify for a mortgage with as little as 5% down payment as long as you have verifiable income.
Consumer credit reports can be very helpful to find out where you are at and to see if you need to make any changes. If you would like more information or a copy of your credit report you can go to www.equifax.ca.
If you have any questions or would like to discuss this further please feel free to contact me 403-803-6625 or email me at jackie@frostmortgages.com. For more information check out my website
April 26, 2010
Posted by jackiefrost |
credit reports, mortgage rules | credit reports, mortgage lenders qualifying |
2 Comments
