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Friday, February 6, 2009

CREDIT BUREAU'S & CREDIT SCORING

A credit bureau and credit scoring are very important factors for anyone trying to secure mortgage financing but many do not understand credit bureau’s and there impact on the ability to obtain financing. Listed below is some helpful information on credit bureau’s:

What the credit score includes!

Not just the negative credit information such as late payments and bankruptcies, but all credit information stored in the repository’s credit file on you at the time of the request.

Past payment performance – 35% of the credit score weight

  • The fewer late payments, judgments, liens or collections, the better. Zero negative entries on your report usually indicate a lower risk.
  • Recent late payments are more indicative of future default by you than those that occurred more than 24 months ago.

  • A 30 day late payment by you today will have a greater impact on your score than a bankruptcy 5 years ago with clean credit since.

Credit utilization – 30% of the credit score’s weight

  • Low balances on several credit cards are better than high balances on a few cards. Balances on your cards should be kept at or below 30% of the available maximum credit limit.

  • Too many credit cards can be detrimental.

  • Warning: Do not discuss any of your accounts without first discussing your complete credit card profile with your mortgage/banking professional.

Credit history – 15% of the credit score’s weight

  • The longer the accounts have been opened and in good standing, the lower the risk indications are about you.

  • Opening new accounts and closing your seasoned will negatively impact your credit score. Avoid "credit surfing".

  • Established credit history is relative to your past payment performance and how high or low your credit usage may be. Self discipline in utilizing credit shows lower risk.

  • A short credit history does not actually indicate that you are a high credit risk, as long as you are not a heavy user of credit and your payments have been made on time. Keep your balances on cards low! To get a credit score, you should have one account that has been opened for at least six months.

Types of credit in use – 10% of the credit score

  • Finance company accounts will score lower than the accounts you secure through banks or department stores. If the predominance of your accounts are with finance companies only, it may appear you cannot qualify for a better credit.

  • “90 days same as cash” and deferred payments generally are funded by finance companies, so this variable is a week indicator for the average consumer.

Inquiries on your report – 10% of the credit score’s weight

  • Looking for new credit can indicate higher risk if several credit cards are applied for in a short period of time and your existing cards have been charged to their maximum limits.

  • Multiple inquiries, regardless of the number, for mortgage or autos in a 14 day period of time only count as a single inquiry in their impact on your score.

  • Additionally, any mortgage or auto inquiry made about your credit file within 30 days of the current lender’s inquiry, will not impact your score due to buffers within the credit scoring models.

  • Promotional or administration inquiries shown on your credit report do not adversely impact your score.

  • Only the first seven inquiries made by different trade lines shown on your credit report will actually be factored into the impact on your score.

  • Only inquiries authorized by you for the purposes of being granted new credit lines will impact on your score.


How to improve your Credit Profile and Score:

There is no magic to improving your credit score. Credit scores automatically improve as your credit profile gets better. Improving your credit profile is not always a quick fix, however, here are a few things to remember.

  • Pay down all your credit cards balances to below 30% of the available credit balance.

  • Do not consolidate accounts on to one or two cards and close other accounts. Low balances on a few cards are better than high balances on the one or two credit cards you have left open. Consolidation of your balances will artificially skew the appearance of your credit utilization.

  • Keep the number of credit cards you own to a conservative number, but don’t close accounts without the advise of a knowledgeable mortgage consultant/banker.

  • Review your credit report for accuracy at least 90 days before you intend to apply for a mortgage or loan. Have any inaccurate information on your report corrected at the repository that is reporting the erroneous information on your report.

  • Understanding that paying off a collection account or judgement, for example, will not eliminate it from your credit profile. Paid or satisfied negative credit items will show a zero balance, but will not disappear from your credit profile for seven years – they still reflect a late or a collection account even if you paid it off.


How does Credit Scoring help you?:

Credit scoring is not a crystal ball, but it helps lenders make more informed decisions and offers real benefits to the consumer.

  • Credit scoring evaluates all applicants by the same criteria. Opinions do not enter the scoring equation.

  • Changes in your credit performance will change your credit score. While “scoring scales” remain constant, your place on the scale will change as your individual credit patterns change.

  • Scoring speeds up credit decisions. Scores help the lender make decisions more rapidly, and often with less documentation.

  • Scoring helps make more credit available to the borrowing public. With more credit available, the cost of credit to you decreases.


How do you correct an error on your Credit Report:

You may dispute any information on your credit report. Once the information is received an investigation will be initiated. If the disputed information cannot be verified, that disputed information will be deleted from your credit report. Contact the following credit bureaus for details:

Equifax Canada Inc.
Consumer Relations Dept
Box 190, Jean Talon Station
Montreal, Quebec
H1S 2Z2
Tel: 1-800-465-7166
consumer.relations@equifax.comThis e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Transunion
P. O. Box 338 LCD1
Hamilton, Ontario
L8L 7W2
(Provinces other than Quebec)
www.tuscores.ca

Transunion
1600 Henri Bourassa
Boul. Ouest
Suite 200
Montreal, Quebec
(Quebec Residents)
www.tuscores.ca