Beacon score is passé, ERS is what you need to know today.

Did you know that Equifax Canada has over 24 million Canadian Credit Files stored? These credit reports get accessed over 160,000 times a day. It is an amazing amount of volume when you think about it. I know what my company pays for viewing one report, it appears managing credit reports can be quite lucrative as well. Until recently I didn’t know that a Beacon credit score was basically out of date! Equifax told me that the formula to calculate the Beacon score was based on data and algorithms that were set up many years ago. I was also informed that because today our credit industry has hanged along with the financial markets a new type of credit score was created. Individual’s Behaviors towards credit have changed substantially as well over the years. I see this difference typically when I review a person’s credit, if they are over the age of forty there is a minimal amount of credit. And under 40, there tends to be quite a bit more credit available. So for today’s credit world someone needs to know what their ERS score is. Equifax says it has been updated and tailored for today’s lending environment.

Thankfully when a person asks Equifax for a copy of their credit report that is what you will receive. If you want to know yourself what your report says I recommend you put these two words into any google search engine, “Equifax” and “Scorepower”. This report will cost you about $24 to view online but it is the best assurance of no mistakes and any possible identity theft violations. (Unfortunately this is the world we live in) Equifax actually put out a tip I didn’t think of recently. A person should always send in death certificates of a loved one when they pass on so it closes off their credit file. There has been a rise in this type of fraud in recent years.

Here is the best number to reach Equifax directly. 1 800 465 7166 Equifax Consumer Support Number. For the last few years I have actually paid monthly for a credit monitoring service they offer. I will get an email or text message anytime a check or hit registers on my credit file. As well a message if there is any additions or changes to my account. This can be invaluable if you are trying to keep a nice high score. Did you know that lender’s in Canada have access to a score based on a person’s borrowing and payment habits that will tell them the likelihood of that person going into a bankruptcy in the near future? I have seen people with high credit scores get turned down for a loan due to having a low Bankruptcy score. Lots of debt, going over limits and only making the minimum payments could drive this score down.

Over the last few years I have noticed that Mortgages and Home Equity Lines of Credit are showing up on credit reports now. Even that late mortgage payment two years ago will show up on a person’s report. The report will not show who the mortgage company is or when that account was opened though. Heck, I even see cell phone bills reporting these days as well. I find lots of people are not as diligent in paying their cell phone bill as they are towards paying their Visa bill. Well now that impacts a person more than they realize.

Credit Scores range from 300 all the way up to 900. This range is the same as the old beacon score but how that score is calculated is the difference today. It is important to realize the difference in types of credit items. Mortgages and car loans are considered equity backed credit and don’t impact credit scores as much as regular unsecured debts such as credit lines or credit cards as well as signature loans. I always get asked, “What should I focus on in order to increase my credit score?” So I have made up a list of items that impact your score the most. (See below)

What makes up my credit score?

Payment History (35%): any missed payments, how recent and any collections etc.

Utilization (30%): how much of your available credit are you using?

Length of the credit history (15%): 12 months, 3 years or perhaps longer.

Type of credit (10%): mortgage or cars, versus retail credit along with the number of credit items/accounts.

Inquiries in the recent time frame and over the long term (10%): how many checks in the last month compared to how many total over the longer term 3 years etc.

When you make a payment today when will my credit report reflect that change? Recent Balance updates really depend on the credit company and what their billing cycle is, usually 30 days. Not all companies report at the same time of the month as well. It takes six years for bankruptcies with a discharge date to disappear, seven from date filed if no discharge was ever issued. The second bankruptcy takes fourteen years to go away. For the most part all collections and judgements are gone after six years as well. Vehicle repossessions should only show up as an R8 not a R9.

How much is enough credit? For mortgage qualification a person ideally should have twenty four months of at least two credit items with a total available limit on each item of $1,500. Of course with no missed payments along the way.

If you ever have any specifics you would like to review together just let me know.

Have a fantastic day!

Dan

About Dan Heon

Dan Heon is the owner and broker of Mortgage Centre / Canadian Mortgage Team Alberta. He has many clients all across Canada that rely on his 18 years of real estate investing and his 13 years of mortgage broker work specializing in real estate investors. In 2010 Dan was ranked 16th in Canada out of over 20000 licensed mortgage professionals according to CMP magazine. Dan’s motto is, “Plan your finance… then finance your Plan!” According to Dan he gets paid by the Banks to help make people millionaires! Visit www.DanHeon.com