Beacon Scores

A: Beacon scores are the first thing most mortgage lenders look at when sizing up a borrower. They're a single number that summarizes your credit situation and shows lenders what kind of risk you're likely to be as a borrower.

The name Beacon is actually a brand of credit score issued by Equifax, the largest credit-reporting agency in Canada . Trans Union, another widely used agency, also issues credit scores under a different name.

Credit scores are based on a complex formula. They range from 300 to 900, with 700 being near average. Individual scores can change every month.

While no one knows the exact formula (except the inventor, Fair Isaac Corporation), Beacon scores are roughly based on:

-Previous payment history (About 35% of score)

-Current level of indebtedness (About 30% of score)

-Length of credit history (About 15% of score)

-Number/frequency of new credit enquiries (About 10% of score)

-Types of credit you have (About 10% of score)

A high credit score is about 750 or above. This typically qualifies borrowers for the best possible rates and terms. A low score is below 620. In this case, you might pay a premium interest rate and find it harder to qualify for a mortgage. As of October 15, 2008, 620 will be the absolute minimum credit score for insured mortgages. That means you'll need at least a 620 score to qualify for good rates on mortgages with less than a 20% down payment.

Keep in mind, the exact score needed depends on the type of mortgage you require. For example, mortgages for the self-employed, or for rental properties, often require higher scores.

Last but not least, there are several "Beacon-killers" to be aware of. Two things that hurt your score the most are payments over 30-days late (even on tiny balances) and maxed-out credit cards. If your credit is weak, however, don't despair. There are several ways to re-establish your credit and improve your score. Two good resources on this and other credit questions are www.equifax.ca and www.transunion.ca .

Melanie and Robert McLister are mortgage agents with Mortgage Architects and Editors of CanadianMortgageTrends.com