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The Credit Bureau... it’s changed!

In past years a person’s Credit Bureau rating was a matter of personal concern and everything one did could impact the integrity of their rating. This caused many misconceptions and fears. In today’s lending world things have changed, but you still need to be careful.

Today the Bureau is actually one of three private companies, Northen Credit Bureau, TransUnion, and Equifax. No longer are items rated on the ‘R’ scale where an R-1 was current, and an R-9 was a serious, long term scar on a record. Today lenders who do a search receive a Beacon Score where a high score is a good thing. This Score is a figure arrived at through a complex mathamatical model that predicts the applicant’s ability to repay debt in the near future.

Probably the greatest misconception by consumers is that shopping a mortgage or loan at multiple lenders creates multiple negative hits against your Bureau rating. In fact, today the computer predictive model tends to treat multiple hits in a short period as only one inquiry. Unfortunately this doesn’t prevent the lender behind the desk making their own judgement, which is why I often prefer to use Mortgage Brokers.

The Credit Score has five broad catagories or weightings:

* 35% based on past payment performance

* 30% based on credit utilization

* 15% based on credit history

* 10% based on types of credit in use

* 10% based on inquiries

A few quick tips for you to consider:

1. Low balances on many cards is better than large balances on a few.

2. Trade accounts from financial companies score lower than traditional lenders

3. Deferred payment options can reduce your score.

4. Looking for new credits over a short period of time can reduce your score.

5. If you guarantee a loan for someone else, the entire loan becomes part of your debt load as well as theirs.

Your credit Score is something you want to protect especially for young people. If you have no credit history start to build it as soon as possible so that when you come to something important like a house or car you have a history that the lender can turn to. No history is almost as bad as poor history. A small RRSP loan or co-signed loan is a good start, or even a pre-paid credit card or line of credit. Build from there.

If you’ve had a bankruptcy you can rebuild your score before the 7 year exemption by using these same methods. The sooner you start to rebuild your Score the better prepared you’ll be when you really need it.

If you’re looking at refinancing your home, buying an investment, or helping the kids, call me and I can set you up with a proper lender with the proper skills and the best rates.

Thanks to TD Canada Trust for some of this information.