The ongoing credit issues have caused mortgage lenders to review their lending criteria, and they have become stricter allowing fewer approvals on an exception basis. The credit bureau report is a very important tool used by lenders.
Most clients have a strong credit history but there are always a few situations, either due to illness, previous unemployment or marital issues where a responsible borrower experiences a credit score drop below the lender's minimum. Credit scores change daily. A weak score can be improved within a few months (& the opposite is true also....scores can drop 75 points or more within a few months if credit is overuse or abused).
Many factors affect credit scores - I hope you find the information below helpful in understanding the score & how it can change. Also, I've included some tips for those who are starting to establish credit.
If you need a mortgage contact, please let me know.
Credit Bureau – Credit Score
- Often referred to as a beacon score
- Score indicates credit worthiness
- Score is a statistical formula that indicates to lender the statistical probability of delinquency
- range from 300 – 900
Scores range from 300 – 900 & is determined by:
- 35% - payment history
- 30% - amount owed
- 15% - length of time on file
- 10% - new credit (how new account is handled)
- 10% - type of credit (bank credit cards, store cc, installment loans)
How to improve score?:
- Pay all bills on time – no matter how small the payment
- Keep account balance below 75% of credit limit
- Avoid applying for credit unless needed
- Too many inquiries – lenders will interpret as financial difficulty
- Score can be improved significantly over a few months if these tips are followed.
What causes a score to drop?:
- Late payment – can cost 30 – 75 points
- Maxing out on credit cards – can drop score by 50 – 100 points
- Scores under 580 – Prime lenders not interested – will need to look at alternate (B lenders)….higher interest rates & fees
- Prime lenders prefer scores of 600 + ….will consider between those around 580 & higher but really need to understand cause of low score (may require guarantor/insurance – case by case).
- 680 – considered a strong score – qualify for 100% financing, no income verification etc.
TIPS for New Borrowers – late teens/young adults should establish credit:
- Apply for credit card – major bank
- Pay on-time monthly
- Apply for an installment loan – shows ability to repay fixed amount on monthly basis. Make it small loan – can be secured by a GIC – keep it outstanding for full term (ie: 12 months)
- Avoid numerous credit cards – ie: retail stores.
Your rights with the Credit Bureau:
- View your bureau report (on-line or by post)
- Advise them of incorrect information (will be investigated)
- In event of identity theft or lost/stolen wallet they will add line to bureau to alert credit grantors to be extra cautious of verifying identity.