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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 bureaus and there impact on the ability to obtain financing.

Listed below is some helpful information on credit bureaus,

What is credit scoring?

  • Credit scoring is a quick, accurate and consistent scientific method for assessing credit risk. Your credit scores are based on data stored by a credit repository about your credit history and payment patterns. Statistical models that assign points to factors indicative of repayment calculate credit scores. These scoring models exist in software utilized by credit bureaus or lenders.

  • The resulting score is a 'snapshot'. It sums up what you�re past payment performance and current usage of credit say about your level of credit risk to the lender. Because the score is a composite of the entire applicant's credit information, no single factor like a late payment or even a bankruptcy will be the sole cause of an unacceptable credit score.

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 files 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 is 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 advice 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 judgment, 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

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

Transunion 1600 Henri Bourassa Boul. Ouest Suite 200 Montreal, Quebec Quebec Residents

Tel: 1-800-465-7166