Beacon scores are a single number that summarizes your credit situation and shows lenders what kind of risk you’re likely to be as a borrower.
Here are some important aspects to be aware of concerning a beacon score on your credit rating.
Beacon scores range from 300 to 900. The average Canadian has a beacon near 700.
Only 11 per cent of Canadians rank above 800 and it’s virtually unheard of to see a beacon near 900.
All you really need is 650 to 700 to qualify for a good mortgage rate.
Even a 600 score will get you a decent enough deal if you can prove income and haven’t had any delinquencies for at least a year.
The 600 score mark is the average minimum credit score for insured mortgages. That means you will need at least a 600 score to qualify for good rates on mortgages with less than a 20 per cent down payment.
If your score is below 600, you are what lenders call a ‘B’ client, meaning there are issues with your credit that banks won’t like.
One in five Canadians are in this boat, but don’t despair if that includes you.
Your credit can be fixed and there are still lenders willing to grant mortgages to the credit challenged.
Also keep in mind, the exact score needed depends on the type of mortgage you require.
For example, mortgages for the self-employed, or for rental properties often require scores on the higher end. Assuming you want to improve your credit, you should know how the Beacon formula is calculated.
The main criteria are as follows.
PAYMENT HISTORY (35%) This also factors in the recent and number of payments over 30 days late, collections, judgments and bankruptcies. A single 30 day late payment can drop your score 15 to 20 points.
CURRENT DEBTS (30%) Considers how much you currently owe compared to your credit limits. How many creditors you owe money to and how much you could owe if you maxed all your available credit.
AGE OF ACCOUNTS (15%) The longer your accounts have been opened the better. Generally you need at least two accounts over one year old.
TYPE OF CREDIT (10%) Bank loans, credit cards and revolving credit all impact you differently.
CREDIT ENQUIRIES (10%) Numerous credit applications in the past 12 months is a no-no. Huge benefit of a mortgage broker is they pull your credit only once for multiple lenders.
Besides the obvious (bankruptcies, judgments, etc.) the top Beacon killers are:
• Payments over 30 days late.
• Maxing out credit cards. (i.e. using over 70 per cent of your limit)
• Seeking too much credit in a short period of time (i.e. applying for four credit cards in one month).
If you have a lot of maxed out cards, bring them at least below 70 per cent of their limit.
Below 50 per cent is better, below 30 per cent is best.
Your credit score can jump considerably in as little as a month.
The moralof the story is know your credit score and manage it carefully as more than 70 per cent of Canadians have errors on their credit report.
Don’t be afraid to check yours. Go to www.equifax.com.
