You may have heard and read a lot about the (U.S. Version) of the FICO Score and how it will impact your credit. Outlined below are the details unique to Canadian borrowers and how you can improve your score and in turn save yourself thousands of dollars in interest charges.
The credit score, also referred to as a "FICO score," is a mathematical formulae created by Fair, Issac and Company.
The credit score is used by most companies to decide if the applicant is a good credit risk or not. Equifax and Trans Union will calculate the numbers from the credit report and generate a number between 300 and 900.
A low score indicates a bad risk. A score of 700 or more puts the applicant in the lenders' good books.
How scores are calculated:
| Factor | Weight | Points
|
Payment History
Bankruptcies, late payments, past due accounts and wage attachments, collections, judgements | 35% | 315
|
Amounts Owed
Amount owed on accounts, proportion of balance to total credit limit | 30% | 270
|
Length of Credit History
Time since accounts opened, time since account activity | 15% | 135
|
New Credit
Number of recent credit inquiries, number of recently opened accounts | 10% | 90
|
Types of Credit
Number of various types of accounts (credit cards, retail cards, mortgage) | 10% | 90 |
| Potential totals | 100% | 900 |
How Clients Can Improve Their Credit Score
- Order a copy of the credit report, review it carefully and correct any significant errors.
- Pay bills on time.
- If there is a questionable credit history, they could open a few new accounts and use them responsibly, paying them off on time.
- Avoid opening accounts without intention of using them. Having five or six of the same credit card type (e.g., Visa), is not favourable.
- Having a credit card or instalment loan can help boost a credit score, as long as the balance is not too high
- Keep balance low in relation to available credit. If the credit limit is $10,000, keeping the balance below $2,500 (or 25 per cent of the limit) will improve the score. Balances of more than $7,500 (or 75 per cent of the limit) will decrease the score. Going over the limit has an even more negative effect.
- Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (i.e., "balance transfer") and closing an old account can hurt the score.
Contact me today if you would like a copy of the complete 19 page report "Understanding Your Credit Report and Credit Score." I will be happy to send you a copy in Adobe PDF format.
David Yeoman, AMP
Accredited Mortgage Professional
Member: Independent Mortgage Brokers Association and
Canadian Association of Accredited Mortgage Professionals
Mortgage Intelligence Inc.
Leading the way to a better mortgage.
Purchase * Refinance * Renewal * Investment
FREE Mortgage Information and Apply On-Line at:
www.OntarioMortgageTeam.com/yeoman.aspx
phone: 705-725-7757
fax: 705-735-4939
email: yeoman@OntarioMortgageTeam.com
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Good info Dave. Some people have no clue at all how some basically simple moves can save them money.