When you apply for a mortgage in Alberta, mortgage lenders use a standard credit score supplier. This is called the Equifax Beacon 9.0.
This is different than TransUnion, Equifax 5.0, and the ERS scoring system used by many online or commercial companies that provide a credit scoring service for personal use.
The major difference is in how credit history and usage is scored, and the fact that mortgages and telecom providers (cellphones) are used in the scoring.
This is why you can have a different score from an online credit company compared to what is shown when dealing with a mortgage lender or mortgage broker in Canada.
How does having a higher beacon score affect my mortgage application?
There are guidelines with lenders and mortgage insurers that have minimum scores that they are looking for. This will affect your ability to get an insured mortgage as well as how much down payment would be needed.
Some mortgage lenders also take into account credit scores to see what level of debt servicing would be allowed on the deal.
Having a higher score than 685 will often mean a higher qualification amount.
How does Equifax Beacon 9.0 calculate your score?
There are 5 Factors that are taken into account when providing a Beacon 9 Score:
- Payment History – 35% of the score: this takes into account your payment history
- Credit Utilization – 30% of the score: this takes into account how much percentage of your credit is currently being utilized. The lower the percentage of utilization the better.
- Credit History – 15% of the score: this takes into account how long you have had credit reported on the Bureau and how many active trade lines.
- Credit Mix – 10% of the score: this looks at different types of credit used and mix. revolving credit (credit cards), installment loans, mortgages, telecom providers, lines of credit, and student loans are examples. Having a good mix helps this score.
- New Credit Enquires – 10% of the score: this scores the number of credit applications you have been inquiring on. Please note that different types of businesses such as mortgage providers and auto loan providers have different rules associated with them than just a one-off inquiry from a credit company.
With mortgage providers, banks, and brokers, all credit enquiries in a 45-day period are counted as one inquiry as Equifax expects to see multiple inquiries when applying for a mortgage.
With auto loan providers, its typically counts all inquiries within a 30-day period.
How do I improve my Equifax 9.0 credit score?
There are some very easy ways to ensure a healthy Equifax 9.0 score
- Make all payments on time – even if you are having an issue with a credit provider such as a cell phone company. Make the payments while you are resolving the issue. Ensure that if you are going to be out of town, or unavailable that all of your payments are set up to automatically be paid on time.
- Keep the balances on your credit sources as low as possible – this is most important on revolving lines of credit such as credit cards and lines of credit. Installment loans are calculated differently because they are a set payment amount.
- Try and have a good mix of credit – Having a mix of revolving, installment, telecom, and mortgage loans will help you increase your Equifax score. RRSP loans also are a benefit if you do not take out installment loans often.
- Keep a good history of credit sources – it is not always beneficial to cancel credit sources such as credit cards, as you may then not have enough active credit. Review your credit situation before closing those accounts. Keeping a credit card active with a low balance over a long period helps increase your Equifax score.
- Review your credit yearly – Once a year, you can request an Equifax report from Equifax by mail for free. You can also go online and pay for an online inquiry.
This will allow you to review your credit score, look for areas of improvement, and also help ensure to protect yourself from fraud. If you see an active credit source that you did not establish, you can contact Equifax and have it investigated as credit fraud is growing in this online era.
Understanding your credit score can have a huge benefit to you in all aspects of life.
Being prepared and using a mortgage professional will help you navigate this process much easier.
Contact us now online, or call or text Dennis at 780-991-1600 so we can answer your questions on how you can take advantage of our One on One Personalized Pre-Qualification.
Fixed rates and variable rates are still very attractive and it’s currently a buyer’s market, so there are a lot of fantastic opportunities awaiting!
This is where we come in. We can look at your situation, guide you toward which is the best way to maximize your budget, and help you purchase the home of your dreams.