This presentation explains the factors that go into making up a credit score in Canada and offers techniques for the consumer to manage their credit score while avoiding certain pitfalls.

1. How your credit score
may impact your
mortgage application

2. What is your credit
score?

3. Credit Score
✘ Credit scoring gives a quick, accurate method for assessing credit
risk
✘ Based on data concerning your credit history and payment
patterns
✘ Statistically based mathematic models are used to assign points
to factors relevant to likelihood of repayment.
✘ This type of software modeling is employed by credit bureaus
and/or lenders to determine someone’s credit worthiness

4. Objective versus Subjective
✘ CREDIT SCORES ARE BASED UPON DATA, NOT HUMAN JUDGEMENT
and hence this is an objective risk assessment tool versus a potentially
subjective, discriminatory human assessment
✘ Credit scores are considered accurate…but in some cases can be
artifically skewed!
✘ Many factors are weighted and measured resulting in a score in
seconds

5. ✘ The resultant credit score is a ‘snapshot in time’ that sums up an
individual’s past payment performance and current usage of credit
✘ Conveys a level of risk to a lender
✘ A credit score is a composite of all available credit information
regarding the applicant so no single factor (such as a late payment or
even bankruptcy) would be the cause of an unacceptable credit score

6. Data used in
Credit Scoring

7. ✘ The fewer your late payments, collections, judgments and liens
you have on your credit bureau the better your score will be. Zero
negative entries here usually indicates LOW RISK.
✘ Recent late payments are weighted heavier than those that
occurred more than 24 months ago
✘ A 30 day late payment today has greater impact on score than a
bankruptcy five years ago with subsequent clean credit.
Past Payment Performance ~35% of score

8. ✘ Lower balances on several credit cards is better than a higher balance
on a few cards
✘ Balances on your cards should be kept below 75% of your available
credit limit
✘ Too many credit cards with high balances can be detrimental to your
score
Credit Utilization ~30% of score

9. ✘ The longer your credit card history is in good standing the
better
✘ Opening a new credit account and closing a long term
account will negatively impact your credit score
Credit History ~15% of score

10. ✘ 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 indicates lower credit risk
✘ A short credit history does not automatically indicate you are a higher
credit risk…
>> …as long as you are not a heavy user of credit and make payments on
time and keep card balances low
More on credit history - continued

11. ✘ Finance company accounts will score lower than accounts you secure
through banks or department stores
>> If most of your accounts are with finance companies, it may indicate
higher risk
✘ Deferred payments are generally funded by finance companies
>> also an indication of higher risk
Types of credit in use ~ 10%

12. ✘ Looking for new credit can indicate high risk if several cards are
applied for in a short period, especially if existing cards are maxed out
✘ Multiple inquiries, regardless of the number, for mortgages or autos
only count as ONE inquiry if within 14 day period
✘ Additional mortgage or auto inquiry made to your credit file within 30
days of current lender inquiries will not impact your credit score
✘ Only inquires authorized by you for the purposes of being granted new
credit will impact your score
Inquiries on your credit~ 10%

13. Summary of Factors Making up your credit Score
10% - types of credit in use
35% - past payment performance
10% - Inquiries into your credit 15% - credit history
30% - credit utilization

14. ✘ Race
✘ Gender
✘ Marital status
✘ Religion
✘ Income
✘ Nationality
✘ Neighbourhood
✘ Employment history, position or title
✘ Sexual preference
✘ Interest rate being charged on a particular card
Irrelevant to your scoring model

15. ✘ NO MAGIC FORMULA! Credit scores automatically improve as your
credit profile improves. This takes time.
✘ Ensure you have and maintain 2 trade lines at all times and that one is
revolving credit i.e. credit card.
✘ Pay down all your credit card and lines of credit balances to below 50%
of available limit.
Improving your Credit Profile and Score

16. more ways to improve your credit profile and score
✘ Don’t close any accounts without the advise of a knowledgeable
broker
✘ Review your credit report for accuracy at least 90 days prior to
applying for a mortgage and have any inaccuracies corrected.
✘ Paid collection items will show a zero balance but will not disappear
from your credit profile for SIX YEARS after paid in full.

17. thanks!
Any questions?
You can find me via my website:
http://mortagesbelleville.com

18. Credits
✘ Presentation template by:
SlidesCarnival
✘ Presentation material compiled by:
StoneHouseMarketing Solutions, Inc.