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Understanding Your Credit Profile

Having an admittedly greater thirst for investing related knowledge and concepts, we have neglected to dig deeper into some of the more personal finance related topics including the various aspects of mortgages and the importance of credit history. We hope to rectify this oversight going forward beginning with the article below that has been authored by Michael Hallett, a mortgage consultant with Dominion Lending in Langley, British Columbia, Canada.

Biography: Michael spent the first ten years of his childhood on the north end of Vancouver Island. While he was too young to remember everything about living there (except for the fune had exploring the outdoors) he now understands the sacrifices his parents made at the time to establish the foundation they needed to become successful in later years when his dad became self-employed in the Vancouver area. Michael just spent the past ten years living in Whistler and exploring different jobs in the tourism industry, including three self-started businesses. These were ventures that he undertook to fulfill his entrepreneurial drive. Mihcael believes that his childhood and adult life experiences have helped him be self-disciplined, motivated, creative, and to focus on setting and reaching goals. His work ethic as a mortgage consultant will be a result of these personal attributes. When he is not working, most of his time is spent with his family and exploring the outdoors. The slogan he lives by is “I work to play”. This has allowed him to develop his businesses with one goal in mind…be successful and have fun doing it. His simple mission to his clients: To find the best mortgage that fits your long term goals and current lifestyle.

For any questions related to your personal credit report or mortgage inquiries, Michael can be reached at 604-616-2266 or mhallett (at) dominionlending (dot) ca – evenings and weekends, not just bank hours and his services are FREE!

Enter Michael:

In the new era of financial lending the Canadian government is trying harder than ever to control Canada’s debt load in order not to repeat what happened in the USA last year. As credit has become more and more abundant in our society, your credit report, and thus your credit rating, has become more important in your daily life. Your credit rating affects all aspects of your financial activities when it comes to borrowing money. Your credit rating also has the ability to affect the job you get, the apartment you rent, and even the ability to open a bank account. Your credit report itself is simply a listing of all of your mortgage and consumer debt.

There are two major credit reporting agencies in Canada, Equifax and TransUnion. An account with usually both these credit reporting agencies is created when a consumer applies for credit. Every time you borrow money, or make a payment on a loan or credit card, the lender then reports the information about the transaction to these two agencies. There are very few situations in which the extension of credit to a consumer does not result in a report going to the credit reporting agencies.

The credit reporting agencies then track all the credit information reported to them and thus create the consumer’s credit profile. The credit information collected reflects the amount of credit an individual has accumulated, minimum amount of payments, the regularity of payments, any missed payments, credit judgements against them, etc. The information on your credit report varies based on your creditors and what they have reported about you. Potential lenders and others, such as employers, view your credit history as a reflection of your character. Whether we like it or not, our financial habits have a lot to say about the way in which we choose to live our lives. The credit report also lists their employer, or if self-employed, occupation, address, date of birth and social insurance number, who has extended the credit, to whom the consumer has requested credit from, and often any former names or aliases.

Since Equifax is used most commonly by brokers, I will refer primarily to the BEACON SCORE. TransUnion refers to their calculation as IMPERICA; beacon score makes more literal sense – in my mind! The assessment of the consumer’s credit worthiness by the credit reporting agency is based on statistics and various calculations that are translated into a credit score. A credit score is a risk assessment. It is a prediction of the consumer’s probability or likeliness to default on a debt over a 2 year period. The lower the credit score, the higher the risk of default. GOOD NEWS, your credit report is a working document and you repair any damaged credit over time to increase your beacon score. A beacon score can range from 300 to 850. Creditors usually interpret the score as follows:

680 - 850: good to superior credit

600 - 679: average to good credit

570 - 600: below average credit

Below 570: poor credit

There are 5 main factors that influence the beacon score:

These are the 5 main factors that influence one's Beacon score

The mortgage products and interest rate that you qualify for are often determined by your credit score. It is important to note that a high beacon score and relatively new credit profile may not necessarily lead to a credit approval. The creditor may not view the short period of credit history as sufficient evidence of the consumer’s ability to handle debt repayment. Don’t have too many credit cards or credit inquiries as this will work against your credit profile. A mortgage consultant, such as myself, can help you obtain a copy of this report and go through it with you to verify that all of the information and help you fix any bad debt.

On April 19, 2010 the Canadian government is ushering in new regulations to help reduce consumer debt load with regard to the mortgage industry. Michael has been keeping on top of these new regulations and opining on them on his highly informative blog, that I recommend everyone visit.

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