Beacon Scores are a single number that summarize your credit situation and show a lenders what kind of risk you’re likely to be as a borrower. Below is a basic overview of the importance of a beacon score.
Beacon scores range from 300 – 900. The average Canadian has a beacon near 700. Only 11% of Canadians rank above 800 and it’s virtually unheard of to see a beacon near 900. All you really need is 650 – 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. 600 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% 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.
1 out of 5 Canadians are in this boat but don’t despair! Your credit can be fixed and there are still lenders willing to grant mortgages to the credit challenged. A mortgage broker can work with you as well as give you great advice
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 (and who doesn’t) 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 15-20 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% of your limit)
Seeking too much credit in a short period of time (i.e. applying for 4 credit cards in one month).
If you have a lot of maxed out cards, bring them at least below 70% of their limit ( Below 50% is better and below 30% is best).
Your credit score can jump considerably in as little as a month.
The moral is, know your credit score and manage it carefully. Over 70 – 80% of Canadians have errors on their credit report.
Don’t be afraid to check yours. www.equifax.ca