Beacon Score Basics for Mortgage Hunters

12/14/2006 by Melanie McLister, Mortgage Planner, MVMA

Your Equifax Beacon Score tells lenders how much of a risk you are, and hence it determines how much you'll pay for your next mortgage. So it's important to know what affects it.

Beacon scores range from 300 to 900 (a perfect score). The average Canadian adult has a Beacon near 720.

Many people think you need to be in the 800's to get great mortgage rates. That isn't the case. Only 11% of Canadians rank above 800, and it's virtually unheard of to see a Beacon near 900. All you really need is 720 or above to get the best mortgage rates. Even 680+ can get you a great deal.

If your score is below 650, you're what lenders call a "B" client (i.e. there's issues with your credit that banks won't like). 1 out of 5 Canadians are in this boat, but don't despair!. Your credit can be fixed and, today more than ever, there's dozens of lenders willing to give mortgages to the credit challenged. I've seen deals get done with Beacons as low as 480!

Here's a table showing the approximate effect of different Beacon scores on mortgage interest rates. It shows how rates go up as your Beacon score goes down. (Note the word "approximate", we can often find you better rates than this):

Assuming you want to improve your credit (and who doesn't?) you should know how the Beacon formula is calculated. Here are the main criteria:

Component	Weighting	Notes
Payment History	35%	Factors in the recency of, and number of, payments over 30 days late, collections, judgments, and bankruptcies. A single 30-day late payment can drop your score 15-20 points.
Current Debts	30%	Considers how much you currently owe (in absolute terms and compared with your credit limits), how many creditors you owe money to, and how much you could owe if you maxed all your available credit.
Age of Accounts	15%	The longer your accounts have been opened the better. You generally need at least three accounts over one year old.
Type of Credit	10%	Bank loans, credit cards, and revolving credit accounts all impact you differently.
Credit Enquiries	10%	Numerous credit applications in the past 12 months is a no no. This is a big benefit of mortgage brokers, who pull your credit only once for multiple lenders.

Besides the obvious (bankruptcies, judgments, etc.) the top Beacon killers are:

• Payments over 30-days late
• Maxing out credit cards (i.e. using over 75-80% of a high credit limit)

If you have a lot of maxed out cards, bring them at least below 50% of the limit (below 30% is best). Your credit score can jump considerably in as little as a month.

The moral of this story is, know your credit. Over 70-80% of Canadians have mistakes on their credit report. Don't be afraid to check yours!

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