Archive for the ‘canada’ tag
Canadian Mortgage Rates
Credit Scores and their impact on Canadian Mortgage Rates
Ask any Canadian who has been through the home buying process what the score is more important – last night's NHL results or their Beacon Score – and they'll probably respond, "the Beacon Scores of course!". The reason is that a Beacon Score is a the credit score the lender's use to measure a borrower's risk based on an assessment of their economic history, including information on credit card , charge cards, loans, Mortgages and overall payment history.
In Canada, 3 private company generates almost All credit scores – Equifax, Trans Union and Experian. Although all 3 bureaus offer FICO (Fair Isaac Credit Organization) scores using the formula developed by Fair Isaac and each has his own name – Equifax calls it the Beacon Credit Score, Trans Union FICO score and Experian uses Fair, Isaac Risk Model.
A high credit score is an important factor in the application and secure deposit and mortgage rate of your choice. It also makes it easier for individuals to get credit cards and loans at concessional conditions, sometimes even with instant approvals. The higher your score, the lower interest rate! The difference between a good and bad score can increase the price of a loan with 3% or more.
Equifax is the most popular credit score used by lenders and results range from 300 to 900 The break-up is as follows:
A common misconception is that all inquiries will negatively affect your score immediately. The reality is that this can happen, but it's not a given and depends of your overall credit profile. The first query can result in a decrease of 5 to 20 points on first mortgages investigation and will generally have a greater influence on the score for consumers with limited credit history and consumers with past late payments, but it is different in each case.
Factors that affect your credit score
1. You have a short credit history
Age of your credit card at revolving or non-revolving accounts also affects your credit score. Revolving accounts are credit cards such as Visa, MasterCard, or retail store card, which allows you to make a minimum monthly payment and "turning" the remainder of their balance over to next month.
Non-revolving accounts include at American Express and Diners Club and must be paid in full each month.
Research shows that consumers with longer credit histories have better repayment risk than those with shorter credit histories. Also, consumers who frequently open new accounts have greater repayment risk than those who do not do.
If you can maintain low balances and make sure your payments on time, your score improve as your revolving credit history ages.
2. You have been looking for credit in the past year
If you have been recently been seeking credit, this is evident on your credit file based on the number of inquiries in the last 12 months. Research shows that consumers seeking new credit accounts are riskier than consumers who do not seek credit.
There are both credit and non-credit Questions about this report and score only considers those related to credit applications. Studies such as your bank review of your account or requesting a copy of your own report are not taken into account.
The scores can identify "rate shopping" so that a credit search leading to multiple inquiries being reported is usually only counted as a single study. For most consumers, a few inquiries on your credit file have a limited impact on FICO scores and the best advice is to only apply for credit when you need it.
3. Not pay off your loan
If you have installment loans and owing money on them, it does not mean you are a high risk borrower. Paying down these rate loans are very positive because it shows that you are willing and able to manage and repay debt, and a successful recovery story is good for your credit rating.
One measurement is to compare outstanding loan balances against the original loan amount. If you took a $ 1,000 line of credit 1 year ago and still owe $ 925, this shows that you may have trouble paying off debt. Generally, the closer the loans to be fully paid off, the better the score. This metric has limited impact on FICO scores.
Paying off loans on time reflects well on your credit score, but if you really want to improve it, try to pay the loans, (especially non-mortgage debt) as soon as possible.
4. Non-mortgage debt is too high
Consumers with higher credit amount is a greater future repayment risk than those who owe less, resulting in the score measuring how much non-mortgage related debt you have.
The total outstanding balance on your last credit card statement is generally the amount that will show in your credit bureau report. Even if you pay them off in full each month, your credit bureau report may show the last billing statement balance.
Pay off your debts and maintaining low balances will help improve your credit score. Consolidate or move your debt into one account will not normally, however, raise your score, since the same amount is still owed.
Bankruptcy on credit report is a borrower's worst nightmare when it stays on record for nearly 10 years, and reduces your score by 200 points or more.
Top tips to improve your credit score
1. Review your credit report at least once a year
2. Contact your creditors or credit reporting bureau to have errors on your credit profile corrected
3. Apply for credit when you need it
4. Keep balances below 50% on credit cards
5. Pay off non-mortgage debt on time as soon as possible
About the Author
Kelvin Mangaroo is the founder of RateSupermarket.ca, a free service enabling Canadians to find the best mortgage rates in Canada and compare mortgage rates with one search.