Does Your Credit Score Need a Work Out?

We evaluate our waistlines, our priorities personal and work, and our goals personal and financial. For most of our financial goals a Healthy Credit Score is necessary. Have you ever tried to lose weight? Just the last 10 pounds... It's not that easy but if we had watched our cookies and just were a little more active we wouldn't need to kill ourselves to get the extra weight off. Credit is kind of the same type of beast. It requires long term maintenance; you have to have a healthy "credit lifestyle" if you will. But how do you know if you need a workout and how do you judge how much of exercise and diet is necessary?

Many people aren't aware but there are actually 3 Credit Bureau agencies utilized in Canada. Equifax, TransUnion and Experion. The most widely used and utilized is Equifax but many lenders pull from 2 sources at one time. The role of the Credit Bureau agencies is to collect information from the Lenders reporting so that Lenders, Landlords, Utility Agencies and others can evaluate the risk in Lending or extending a credit service to applicants. The score may differ slightly from one bureau to another but will be in the same range. Credit Scores Range from 300 to 900 with a higher number being preferable.

How does my credit Weigh in?
Your credit score is calculated by taking the following into consideration:
- Payment History (35% of your score based on this)
- Outstanding Debt & Credit Balances (30%)
- Inquiries (10%)
- Length of time on Bureau for Accounts (15%)
- Types of Credit (10%)

What is the average score and what does this tell us?
Studies in Canada say the average score is around 720... I have been lending for over 10yrs now and find that statistic high! In Mortgage Brokering we can provide preferred rates for anyone having a score of 680 or higher but many times the Lenders will allow a score of 620 for BEST RATES. Have a higher credit score means that you have more negotiation room with your Lender on interest rates. Don't fret though many people are working on trimming their Credit Bureaus and shaping up to get a Healthy Score. CMHC (Canada Mortgage Housing Corporation) has a minimum requirement for Beacons of 600.

When a Lender is evaluating your application they are also considering the strength of other things such as Employment History and Capacity (ability to pay based on income). Many times the reason for reduced credit score happens because of Illness, Disability, Divorce and Lenders are usually willing to take that into consideration.

How can I trim down and Move my Score UP...

1. First of All Keep Track of Your Credit - You should check your credit at least twice per year. WAIT - I don't mean by applying but by utilizing a service offered by Equifax.ca and at accost of $23.95 by ordering your credit report through Score Power. When you order your credit report this way it is a SOFT inquiry and does not affect your score.
2. Keep your Inquiries to a Minimum. A couple a years is reasonable but if you have 10/year this will affect your score negatively. Be aware when you are shopping for Large Ticket items and are asked to provide Personal Information such as your Date of Birth, SIN etc. Ask if they are planning on pulling a Credit Bureau and SAY NO until you are ready for your purchase. Be aware of what you are signing and ask questions.
3. Keep Balances at 75% or Less of Limit. Keeping your revolving accounts like Lines of Credit and Credit Cards at 75% or less will allow you maintain a higher credit Score. Being OVERLIMIT is viewed as bad as being late so keep your limits in check.
4. Pay Payments on Time. When you are setting up a loan or payment make it easy and convenient. Coincide payments with your payroll when possible. That way you get paid and the lender gets paid - no thinking required.
5. Pay COLLECTIONS - If you have had a problem with a Cellphone, Library Card or Parking Ticket. Pay it, Pay it. Most lenders aren't able to extend credit when there is an outstanding collection. If you follow #4 you shouldn't need this step.

Rebuilding your Credit Due to Bankruptcy or Consumer Proposals

The first step to rebuilding your credit is to ensure that you have ongoing credit. If you were able to keep Loans secured with Vehicles during bankruptcy that will ensure that your score will improve over time. You are unable to obtain credit until your Bankruptcy has been discharged but after that time a Secured Credit Card is usually the best option. In order to get a credit card you will have to provide Cash Security, usually 110% of the limit so for a $1000 limit you would provide $1100 cash that the Lender would hold in the case of late payments and default.

Getting the Big Macs off Your Waistline and Your Credit Score Trimmed Up

Judgments - are removed 6-10 ten Years from Paid Date
Bankruptcies - 6-7yrs from Discharge or 14yrs from Filling Date
Negative Information - 6-7yrs from the date of delinquency or last activity. (Including previously negative accounts that have been closed or paid in full.)

Sometimes the Scale is Wrong...

If something is reported inaccurately on your credit bureau or is not your debt it is your responsibility to contact the Credit Agencies and have that error corrected. If you dispute something the Credit Bureau asks the source to verify it (Lender). There are dispute forms on the Equifax.ca site. As well your Mortgage Broker can send in the updated information. Usually the process takes about a week and then your score is amended accordingly.

Having a Healthy Credit Score is achievable if you do the work and stick to your plan. Healthy credit scores allow you the access to Homes, Vehicles and Lines of Credit. With a Healthy Credit Score you can reduce the Cost of those things you want. This gives you the POWER to negotiate better terms on your loans, Mortgages and Credit Cards.

Tiffany Clark
TMG The Mortgage Group - Grande Prairie, AB
http://www.trustintiff.com