Understanding Your Credit Score
Good credit always works to your advantage so here are some tips on how credit scores are formulated (Component Weighting):
Payment History - 35%:
Factors in the recency of, 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 (in absolute terms and compared with 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. You generally need at least three accounts over one year old.
Type of Credit- 10%:
Bank loans, credit cards, and revolving credit accounts all impact you differently.
Credit Enquiries - 10%:
Numerous credit applications in the past 12 months is a no-no. This is a big benefit of mortgage brokers, who pull your credit only once for multiple lenders.
Besides the obvious (bankruptcies, judgments, collections, etc.) the top Beacon killers are:
If you have a lot of maxed out cards, bring them at least below 50% of the limit (below 30% is best). Your credit score can jump considerably in as little as a month.
The above information is summarized in the table below:
Component | Weighting | Notes |
Payment History | 35% | Factors in the recency of, 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 (in absolute terms and compared with 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. You generally need at least three accounts over one year old. |
Type of Credit | 10% | Bank loans, credit cards, and revolving credit accounts all impact you differently. |
Credit Enquiries | 10% | Numerous credit applications in the past 12 months is a no-no. This is a big benefit of mortgage brokers, who pull your credit only once for multiple lenders |
Compliments of Artie Ricknauth, MBA
Mortgage Consultant
Mortgage Central
Direct: 416-744-0012
Fax: 416-519-0086