HLC Home Loans Canada
Credit Ratings
How do Lenders view credit scores?
Ø Credit score indicates creditworthiness.
Ø The higher your score, the lower the probability that you will become delinquent.
Ø Each lender will base its decision on more than just the score.
Ø Lenders use your credit score to determine who is a good candidate for credit and likely to pay who will pay their bills.
Ø In the event of bankruptcy, it helps them determine what type of repayment plan is best.
Ø Credit reports are updated daily. Beacon scores are recalculated continuously.
Ø Credit score from a month ago is probably not the same today.
What is a Credit Score?
Ø A credit score is a statistical formula that translates personal information from the credit report and other sources into a three-digit score (Beacon Score).
Ø Information from the application and information from the credit report is used to compute a score that indicates to the lender the statistical probability of being delinquent.
Ø Some scores are based strictly on the data in the credit report; these are known as “Beacon Scores".
Ø It is important to understand that a credit score is only one criterion that a lender will use in making decisions.
Ø Some lenders consider the property being purchased and the homeowner's equity.
Ø Many lenders look at their relationship with the customer, which may include other financial services.
Ø Each lender will have its own policies.
What is used to calculate credit scores?
Ø Payment history - Indicates whether credit card payments, loan payments and other payments are made on time.
Ø Amounts owed - Compares how much is owed based on credit limits with various lenders
Ø Length of time in file - Indicates how long credit accounts have been held.
Ø New credit - Shows how often new credit is being requested and how recently opened accounts are being handled.
Ø Type of credit - Considers the type of loans - car loans, lines of credit, credit card balances
Ø *Note: Mortgage information is not used to calculate credit score*
Will inaccurate information effect credit score?
Ø Depends upon what information is wrong.
Ø If the inaccurate information is used as part of the score calculation, the score will be affected.
Ø Information used in the score calculation is found in the Credit Information, Public Record and Collections sections of the credit report.
Ø Consumers are encouraged to request and review their credit report on a regular basis.
Ø Consumers can dispute any discrepancies by immediately notifying the credit reporting agency.
What can be done to improve credit scores?
Ø Pay all bills on time no matter how small the payment.
Ø Balances up to and beyond their credit limit.
Ø Keeping account balances below 75% of available credit will help.
Ø Avoid applying for credit unless needed.
Ø Too many inquiries will be interpreted as a sign of financial difficulties.
Ø A flurry of inquiries will prompt most lenders to ask you why.
Rating Terminology!
Ø R 0-Too new to rate, approved but not used.
Ø R 1-Pays (or paid) within 30 days of payment due date or not over one payment past due.
Ø R 2-Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due.
Ø R 3-Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due.
Ø R 4-Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
Ø R 5-Account is at least 120 days overdue, but is not yet rated "9“
Ø R 7-Settlement, consumer proposal/credit counselling
Ø R 8-Repossession (voluntary or involuntary return of merchandise)
Ø R 9-Bad debt; placed for collection; skip account.
Beacon Scores
Ø Beacon Scores range from 300 and 900.
Ø Lenders use this number to determine your credit rating.
Ø Credit scores are calculated from a lot of different credit data in credit reports.
Ø These percentages reflect how important each of the categories
are in determining your score.
35% - Your payment history. Indicates you are paying your credit cards, loan or other payments on time. Other factors include delinquent accounts, past due payments and negative public records or collections.
30% - Amounts you owe. Compares how much is owed against credit limits and the types of accounts you carry balances on.
15% - Length of your credit history. Indicates when a account was opened and the length of time passed since the last activity on accounts.
10% - New credit. Shows how often you are applying for new credit and how you handle accounts you've recently opened.
10% - Types of credit used. Considers the type of loans for example: instalment, revolving, mortgage, car loans, lines of credit or credit
card balances.
A credit score is a number assigned by credit grantors to indicate how likely someone is to pay back a loan or credit card. This number shows the level of risk a borrower might represent and is used as a predictor of future performance.
