November 18, 2019

How to Manage Your Credit Score


Credit History is one of the 5 Vital Signs in mortgage underwriting. The first indicator of credit performance that a lender uses is something called Beacon Score. The terms Power Score, FICO Score and Credit Score are also used.

·       These mysterious “scores” come from a statistical model that processes all of the transactions in your credit life. Someone starting out brand new in the credit world starts with a score of 600. At the top of the positive end of the scale the score can reach well into the 800’s. At the low end the score can be in the 300’s.

·       Four aspects of your credit profile are important in determining your personal Beacon Score.

·       Loan payments on time and credit card payments within the 0 to 30 day window have a positive impact on your score. Late loan payments and credit card payments over 30, 60, 90 and 120 days have negative impact on your score; with longer overdue payments having greater negative impact.

·       Collections and judgments have a negative impact on your score.

·       Running your credit cards consistently at over 75% of their credit limit has a negative impact on your score.

·       Applying for credit at many stores or with many credit card companies in a short period of time will also have a negative impact on your score. The theory in the model is that if you apply for credit it is granted; if it is granted it is used; and if you take on a lot of new credit in a short period of time then you are not AS LIKELY, statistically, to be able to make the payments on time. Hence the negative impact.

·       Note: multiple inquiries for automobile financing and mortgage financing in a short period of time do not have the same impact as multiple inquiries for retail credit.

So, to keep your score moving in the right direction:

·       Make payments on time.

·       Keep credit card balances at or below 70% of the authorized limit.

·       Apply for new credit over a measured period of time.

Mortgage lenders rely on your credit score and the details of your credit performance when reviewing your mortgage application. However, other than on mortgages which operate as Lines of Credit, mortgage lenders do not report mortgage payment performance to Equifax or TransUnion, the dominant Canadian credit bureaus.

I encourage you to share this information with your high school, college and university aged children. The credit card companies are lined up outside the door at the graduation ceremonies!

Some mortgage programs require minimum beacon scores for all persons on the application. With other mortgage lenders the interest rate is determined by the beacon score of the higher income earner

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