Your Credit Score - Where You Stand Will Affect If You Can Borrow
Global Pandemic aside, there is little momentum lost in the housing market as we enter the second quarter of 2021. Despite gloomy predictions to the contrary from those in the know within the real estate sector, houses are still flying off the market much faster than this time last year and property appreciation continues to head upwards in numbers unparalleled in previous years leading up to the pandemic.
Factors that have merged to create this enviable scenario in the Ontario housing market include:
Low overall inventory compared to the number of buyers looking to buy in the GTA and even to commuting cities outside of the GTA.
Continuing exceptionally low mortgage rate on both fixed and variable terms.
Buyers looking for more space as working from home is now fast becoming the new reality for many.
As more and more borrowers are looking to the varied mortgage options available, there is no better time to point out the obvious. Without a very strong credit score and credit history, many borrowers will not get approved for a mortgage. This stands more true for borrowers putting less than 20% down and lets face it, that is the majority of borrowers; I mean, who has over $100,000 to put towards their down payment? - not many.
A borrowers overall credit and financial picture must stand strong when it comes to getting approved for a mortgage to purchase a property.
What Exactly is Your Beacon Score and Understanding the Revolving Credit Rating on Your Credit Report
In Canada, there are two main credit reporting agencies, Equifax and Transunion. Both reporting agencies have compiled a history of an individual’s borrowing history and a history of using credit. It is from this Credit Report that lenders will determine the creditworthiness of a potential borrower when determining whether to approve mortgage financing.
It is this emphasis on credit that makes it imperative for a borrower to be very familiar with their credit report before approaching a prospective lender. Both credit agencies provide options to obtain a copy of your credit report for a minimal fee. Also, some banks, including Scotia Bank provide your current credit report free of charge which is beneficial as it is very important to monitor your credit .
A Beacon score is a number that is assigned to an individual that is a reflection of his/her credit standing based on designated criteria provided to the reporting agencies through a multitude of lenders, including banks, mobile service companies, and credit card companies.
It is important to look at your Beacon score as a snapshot of your credit picture and this is fluid, always changing based on your pattern of paying debtors or bills each month.
The main information is calculated to produce both a revolving credit rating and an overall beacon score. Borrowers revolving credit will be written as R on a credit report and the rating will range from R1 (the highest R rating) to R9 (very poor rating) :
R1 - this indicates the borrower is up to date with their payments, credit cards bills, etc.
R2 - This indicates the borrower is 30 days late in their payment ( one month behind)
R3 - This indicates that the borrower is 60 days late in their payment(s). (Two months in arrears)
R4 - This indicates that the borrower is 90 days late in their payments(s). (Three months in arrears)
R5 - This indicates that your borrower is 120 days late in their payment(s). (Four months in arrears)
R6 - Usually not used (stopped making payments).
R7- This indicates that the borrower has been directed or is in credit counseling
R8- The process of repossession has begun
R9- Bad debt write off (sent to collections, usually a 3rd party collections agency by this point)
This information will be factored in along with other variables to determine an individual's overall beacon score. The range of possible credit scores lies between 300 to 900 with 300 being considered the poorest score and conversely 900 representing the highest score. Here is how the overall credit score ranges break down:
575-659- Below Average
What is the greatest takeaway? Know your credit score and credit history. The lenders will be relying on this score to determine mortgage eligibility and will be scrutinizing your credit report.
Do what you can to increase your score with easy steps such as paying bills on time, keeping your credit balance no more than 50% of the credit limit and avoid too many “hard pulls” on your credit.
Contact me for guidance on how to prep yourself to get qualified for a mortgage - how to look good on paper.