The Make up of a Credit Score

                                  CREDIT SCORING

The credit score, also referred to as a “FICO score” is a mathematical formulae created by Fair, Isaac and Company.

The credit score is used by most companies to decide if the applicant is a good credit risk or not. Equifax and Trans Union will calculate the numbers from the credit report and generate a number between 300 and 900.

A low score indicates a bad risk. A score of 700 or more puts the applicant in the lenders’ good books.

How scores are calculated:

Factor	Weight	Points
Payment History Bankruptcies, late payments past due accounts and wage attachments, collections, judgments	35%	315
Amounts Owed Amounts owed on accounts, proportion of balance to total credit limit	30%	270
Length of Credit History Time since accounts opened, time since account activity	15%	135
New Credit Number of recent credit inquiries, number of recently opened accounts	10%	90
Types of Credit Number of various types of accounts (credit cards, retail cards, mortgage)	10%	90
Potential Totals	100%	900

How Clients Can Improve Their Credit Score

·       Order a copy of the credit report, review it carefully and correct any significant errors.

·       Pay bills on time.

·       If there is a questionable credit history, they could open a few new accounts and use them responsibly, paying them off on time.

·       Avoid opening accounts without intention of using them. Having five or six of the same credit card type (e.g., Visa) is not favorable.

·       Having a credit card or installment loan can help boost a credit score, as long as the balance is not too high.

·       Keep the balance low in relation to available credit. If the credit limit is $10,000, keeping the balance below $2,500 (or 25 per cent of the limit) will improve the score. Balances of more than $7,500 (or 75% of the limit) will decrease the score. Going over the limit has an even more negative effect.

·       Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (i.e., “balance transfer”) and closing an old account can hurt the score.

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As a Mortgage Broker in Kelowna Brad Adams can help you through the credit score process to get you the best scores

                                  

INCREASING YOUR CREDIT SCORE

Good credit translates into lower rates for the borrower!

·       HOT TIP! Do you have past due balances that have been neglected? If they are showing up on your credit report and you want to purchase a home, make sure you bring them up to current status whenever possible.

·       HOT TIP! Do you have outstanding debt that you can afford to pay off right now? Try to get these accounts down to a zero balance, or at least a lower balance. If your cash on hand doesn’t allow you to do this, try to distribute the debt amongst other open credit cards. You can also consider opening a new line of credit and transferring part of the balance off a card that is close to being “maxed out”. If you can get the resulting balances below 50% of the available credit, you’re on the road to improving your credit score considerably in most cases.

·       HOT TIP! Do not close existing credit card accounts; even if you don’t want to deal with the company anymore … Believe it or not, the credit history is a good thing to have!

·       HOT TIP! When married couples keep separate credit card accounts, some or all of the balances can be transferred to ones spouse’s list of accounts. This gives the other spouse an opportunity to increase their credit score and designate him or herself as the sole borrower on the mortgage loan. Ownership of the home can remain in both names!

·       HOT TIP! See if your credit provider will increase your available lines of credit. This can, in turn, reduce the overall debt ratio, but only do this if your credit card company can do that without a hard credit inquiry.

·       HOT TIP! Do you have past dues and charge offs within the last two years? Pay them off now, if you can! Past dues older than two years will have little to no impact on your credit score if they are paid, but can possibly bring the score down, which is something we don’t want to do… Focus on that two year time frame.

·       HOT TIP! Do you see errors in your report? Request the credit bureau delete any outstanding debt that is incorrectly charged to you, or things that should have been removed that you have already paid. They have an obligation to reconcile this within 30 days. If you see items on your report that are less than two years old and you have the money to pay it off now, mark the back of you payment check with the following notation: “Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record.” If necessary, you can use this cancelled check as proof of the transaction in the event the outstanding debt is not removed promptly and interferes with the closing of your loan.