Mortgage Blog

Understanding Credit Scores

July 17, 2019 | Posted by: Holly Cochrane

Ranging from 300 to 900, your credit score captures your perceived lending risk at a moment in time. Your score tells lenders what kind of risk you are likely to be as a borrower. Your score can change from month to month. The companies that hold your credit and loan accounts report monthly transactions to credit bureaus.

Holly Cochrane from the Holly Cochrane Mortgage Team explains “This is beneficial to you because it means you can improve your score with the right credit “Behaviours”. It is important to understand your credit score and know how to positively influence it.”

Benefits of a Credit Score Above 750
Lenders offer a quick approval at the best possible rates.
This score says the person is reliable and responsible with debt.

Challenges of a Credit Score Below 620
You could pay a premium on your borrowing rate.
You may find it difficult to qualify for a mortgage.

HOW YOUR SCORE IS DETERMINED

1. Previous Payment History (approx. 35% of score)

Holly explains, “Your track record of paying your credit accounts on time is the most heavily weighted attribute.”

Events such as late payments, collections, judgements, liens, foreclosures, bankruptcies, and wage attachments are part of this category and are considered quite serious. More recent events and large amounts will affect your score more than older events and smaller amounts.

2. Current Level of Indebtedness (approx. 30% of score)

This portion of the score considers whether you are overextended or not. Too many credit cards or keeping your accounts at or near their maximum limit can signal that you don’t manage credit responsibly, ad that you may have trouble making payments in the future.

3. Length of Credit history (approx. 15% of score)

The longer you have had credit in good standing the lower the risk indicators. This score considers the age of your oldest account and an average age of all of your accounts. New accounts will therefore lower your average account age.

4. Pursuit of New Credit (approx. 10% of score)

Opening several credit accounts in a short period of time is a risk indicator. “The number of enquiries done on your behalf can have an effect on your score,” explains Holly. “However credit scores to try to differentiate between rate shopping for a single loan and searching for many new credit accounts.”

5. Types of Credit Available (approx. 10% of score)

This attribute considers the mix of credit accounts you have: credit cards, retail accounts, instalment loans, accounts with finance companies, and your mortgage. The goal is to determine if you have a healthy mix of credit. For instance, having a car loan, mortgage and credit card is more positive that a concentration of debt in only credit cards.

“As mortgage professionals, the Holly Cochrane Mortgage Team can assist you in understanding and improving your credit score. We can also work with you to find proactive ways to improve your credit score and make your loan application process much smoother,” explains Holly. Contact the team on 780-485-7908 to learn more about your credit score.

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