TD changing to collateral loans for mortgages – the bad news
TD is changing their mortgages to collateral loans as standard.
We think this is to keep people from refinancing with another bank because TD is not offering competitive rates. There are also some other negative points to the new TD mortgage listed below:
Cons:
- Most chartered banks will not accept “transfers” of collateral mortgages from other chartered banks. If the consumer wishes to switch their collateral mortgage to another lender upon maturity, there will be legal & appraisal costs. Approx $750-$1000
- Upon maturity, would the lender offer only a posted fixed rate or just a slightly lower rate knowing the costs associated with transferring to another lender has legal & appraisal costs.
- Collateral charges allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing. On secured lines of credit, the interest rate registered at Prime + upwards of 10%.
- Collateral loan involves the other debts you may have. Under Canadian law, a lender may seize equity to cover other debt you have with the same lender. So, in essence, you’re possibly securing all your loans that you have with that financial institution; be it credit cards, unsecured lines of credit, car loans, or overdraft etc.
Now the Pros:
I can’t think of any!
Ensure you do your home work on TD mortgages. There are lots of other lenders and lots of alternatives.
Canadian Prime staying at 3% – maybe for half a year
Comment – this article exactly summarizes our thoughts for how things will play out:
Prime will stay at 3% for 6 months, mortgage rates will stay low as long as the stock market bounces all over the place and now is a great time to take advantage of the situation by redoing our mortgage or buying.
Bank of Canada holds key rate at 1%
OTTAWA — Interest rate hikes are on hold until at least the spring and maybe as long as late 2011, analysts say, as the Bank of Canada decided Tuesday to keep its policy rate unchanged amid weaker-than-anticipated growth, especially in the United States.
The Canadian dollar fell by more than two cents at one point following the decision, as the central bank signalled the country would need to rely more on net exports for growth — a sign, economists added, the loonie’s value would be a key consideration in future rate decisions.
The central bank said it scaled back its growth projections for this country as the global recovery enters a “new phase.” It now expects GDP to expand just three per cent this year and 2.3 per cent in 2011, compared to expectations in July for advances of 3.5 per cent and 2.9 per cent, respectively. Second-quarter GDP growth, at two per cent annualized, was well below the central bank’s forecast of three per cent expansion.
Further, the Bank of Canada said it does not envisage the Canadian economy reaching full potential until the end of 2012, or one year later than previously expected. The same timeline applies to inflation — which guides all interest-rate decisions — as the “significant” excess slack would keep consumer prices increases from reaching the desired 2% level for another two years.
“This is not just a data watching central bank that is keeping its powder dry in order to evaluate developments over coming months — this is a central bank that has totally revised its outlook and market guidance,” said analysts at Scotia Capital. “To us, the Bank of Canada is saying they are on hold until late next year.”
The central bank also signalled the composition of growth is set to change, with less emphasis on consumer spending and increased reliance on business investment and net exports.
The Canadian dollar recovered slightly after its initial drop. It was trading around 96.92 cents U.S. at 11 a.m., down from Monday’s close of 98.61 cents U.S..
Jonathan Basile, economist at Credit Suisse Securities in New York, said this indicates the Bank of Canada “will be watching the Canadian dollar more closely” as strength in net exports is predicated on a loonie that doesn’t strengthen too much against its U.S. counterpart.
The statement “appears to be a pretty clear signal of the Bank of Canada’s intention to pause,” said Michael Woolfolk, managing director at BNY Mellon Global Markets in New York. “Moreover, it suggests that the central bank may pause longer than expected. With the Bank concerned now about the economy’s increasing reliance on net exports, it will take particular care not to unnecessarily bolster the loonie through future rate hikes.”
Economists at Royal Bank of Canada and Toronto-Dominion Bank told clients that March of next year might be the earliest at which the central bank resumes rate hikes.
“The economic outlook for Canada has changed,” said the central bank, led by governor Mark Carney. “(A) more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending” as real-estate activity slows and consumers deal with their personal debt.
The decision to keep key rate unchanged leaves “considerable monetary stimulus” in place to achieve the central bank’s preferred two per cent target, the central bank indicated.
Plus, Basile said the central bank signalled three factors that stand in the way of future rate hikes: a weaker U.S. outlook; constraints curbing growth in emerging-market economies; and domestic considerations, most notably household debt.
Tuesday’s rate statement reflects a more dovish tone from the central bank compared to its last decision roughly six weeks ago, when it opted to raise its benchmark interest rate by 25 basis points for a third consecutive time. More detail regarding the central bank’s outlook will emerge Wednesday when the Bank of Canada releases its latest quarterly economic outlook.
The big game-changer, analysts say, is the tepid U.S. economy and the signals from the U.S. Federal Reserve that it’s preparing to inject additional liquidity in the economy through asset purchases, with a dual goal of lowering borrowing costs and boosting inflation expectations.
As a result, a pause from the Bank of Canada “is entirely justifiable,” said Eric Lascelles, chief Canadian strategist at TD Securities, in a note to clients prior to the release of the central bank’s decision. “The thought that if the U.S. needs (further easing), the economic prospects for the U.S., and by extension Canada, are also threatened.”
The Bank of Canada said the global economic recovery is entering a “new phase,” as the factors supporting growth in advanced economies, such as the rebuilding of inventories and pent-up demand, subside just as fiscal stimulus is wound down.
“The combination of difficult labour market dynamics and ongoing de-leveraging . . . is expected to moderate the pace of growth relative to prior expectations,” the central bank said. “These factors will contribute to a weaker-than-projected recovery in the United States in particular.”
Growth in emerging economies is expected to ease as governments in those markets put the brakes on stimulus spending and raise borrowing costs. As it happened, China raised interest rates earlier Tuesday.
And recent moves by emerging markets and advanced economies to intervene in foreign-exchange markets was highlighted by the Bank of Canada as a further risk to the global economic recovery. “Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery,” the central bank said.
The warning emerges just days before a key Group of 20 meeting of finance ministers and central bankers in South Korea in which foreign-exchange policies is now expected to dominate the agenda. Both Carney and Finance Minister Jim Flaherty are set to attend the meeting.
© Copyright (c) Postmedia News
TD mortgages get harder to get out of
Comment:
TD mortgages just became less appetizing as they are now very difficult to get out of. We do not use them much and now even less.
TD bank overhauls mortgage program
Prime to stay the same until March 2011
Report says BoC likely to hold rates until March 2011
This month’s RBC Financial Markets Monthly publication reports that the Bank of Canada is likely to hold rates until March 2010.
Report Excerpts:
Canada takes a breather after sprinting out of recession
With real GDP standing a hair’s breadth away from its pre-recession peak and final domestic demand already treading into new territory, reports of more moderate activity in July did not prove too surprising. The sharp recovery in the housing market started to stall in mid-2010 because pent-up demand generated during the recession was satiated and buying—ahead of the mild tightening in mortgage rules and the implementation or increase in the HST in three provinces—was exhausted. The robust sales pace left a high level of household debt in its wake resulting in the debt-to-income ratio rising to an all-time high in the first quarter.
Recent growth has not been strong enough to exert significant downward pressure on the unemployment rate and inflation pressures have been moderate with the core rate at 1.6%. The headline inflation rate was 1.7% in August, thereby holding below the Bank’s 2% target, even after the harmonization of provincial and federal sales taxes in Ontario and BC were incorporated into the price measure. Unlike in the US, where we expect that core inflation will remain very low, we forecast Canada’s core rate to hold just below the 2% target during the forecast horizon and gravitate above 2% in mid-2012.
Rate increases likely to resume in early 2011
Our overall assessment of the Canadian outlook has changed little in the past month, so we are maintaining our call that the Bank will gradually raise the overnight rate to 2.25% in the second half of 2011. This gradual reduction in policy accommodation will keep a lid on the degree that term interest rates will rise especially against a backdrop of very low U.S. rates. We trimmed our 2011 forecast for yields looking for the two-year rate to end 2011 at 2.85% and the 10-year bond yield at 3.75%.
Other highlights from this month’s Financial Markets Monthly:
- U.S. data have been a mixed bag and confirm that the U.S. recovery is continuing, albeit slowly. The risk of deflation, not inflation, appears to be at the top of the mind for policymakers now with the Fed likely to implement another round of quantitative easing to ensure that growth and inflation do not slow further.
- The uncertain global outlook is likely to be the dominant factor in the Bank of Canada shifting to the sidelines for the remainder of 2010.
- Policymakers in the UK are unlikely to deliver a further easing in policy unless conditions become much worse.
- The RBA stayed on the sidelines this month although the statement showed a clear tightening bias which sets up for a hike before year end.
- Canada’s economy sputtered in July after very robust domestic demand earlier in the year.
- Inflation remains mild with both the headline and core rates below the Bank’s 2% target.
- The uncertain global outlook is likely to be the dominant factor in the Bank shifting to the sidelines for the remainder of 2010.
Canada’s homeownership costs continue to climb despite slowing resale activity
TORONTO, Sept. 27 /CNW/ – Homeownership costs in the second quarter rose across Canada for the fourth consecutive time despite the recent slowing in resale market activity, according to the latest housing report released today by RBC Economics Research.
“Higher mortgage rates in tandem with a further appreciation in home prices boosted the monthly costs associated with carrying a mortgage on a typical home,” said Robert Hogue, senior economist, RBC. “This extended the deteriorating trend in affordability since the middle of last year; however, affordability levels in Canada generally remain within a safe range.”
The RBC Housing Affordability Measure captures the proportion of pre-tax household income needed to service the costs of owning a home of a certain category. During the second quarter of 2010, measures at the national level rose between 1.1 and 2.1 percentage points across the housing types tracked by RBC (the higher the measure, the more difficult it is to afford a home).
The detached bungalow benchmark measure rose by 1.9 of a percentage point to 42.9 per cent, the standard townhouse inched up by 1.1 of a percentage point to 34.1 per cent, the standard condominium climbed by 1.1 of a percentage point up to 29.3 per cent and the standard two-storey home experienced the largest increase, climbing 2.1 percentage points to 48.9 per cent.
The report notes that the slide in affordability over the past year has reversed approximately half of the considerable improvements in affordability witnessed in 2008 and early 2009.
RBC projects a temporary easing in housing affordability as a result of the recent decline in mortgage rates and the increasing evidence that home prices have started to stabilize in many markets. However, the Bank of Canada is expected to continue raising interest rates over the next 12 to 18 months which will become the dominant factor making homeownership less affordable once the near-term reprieve has passed.
“Current levels of affordability suggest some greater-than-usual stress weighing on Canadian homebuyers, but this does not represent an imminent threat to the market,” noted Hogue. “While we expect rising interest rates to increase mortgage servicing costs, a leveling off in home prices and increasing household income will partly offset the negative effect.”
Ontario and B.C. saw the most significant deterioration in affordability in the second quarter; however, some improvements in specific housing types occurred in Alberta (condominiums) and Saskatchewan (townhouses). All other provinces showed modest erosion, with the exception of two-storey homes in Manitoba where the rise in the RBC measure was quite substantial.
RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 74.0 per cent (up 1.7 percentage points from the last quarter), Toronto50.2 per cent (up 2.4 percentage points), Montreal 43.2 per cent (up 1.8 percentage points), Ottawa 41.2 per cent (up 3.6 percentage points), Calgary 39.2 per cent (up 0.9 percentage point) and Edmonton 34.7 (up 2.5 percentage points).
The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.
Highlights from across Canada:
- British Columbia: Homeownership in B.C. is testing household budgets with affordability deteriorating again in the second quarter despite downward pressure on home prices and market activity sinking since the start of this year. RBC’s measures rose between 1.1 and 2.5 percentage points, representing some of the strongest increases among the provinces, and are near all-time highs for all housing categories. Very poor affordability is likely to restrain demand in the period ahead.
- Alberta: Affordability measures have improved in Alberta since early 2008 as a result of lacklustre housing market conditions. The second quarter saw a mixed picture with prices easing slightly for condominiums but rising in all other categories. RBC notes that affordability measures are at or below their long-term averages, implying little downside risk to the market and boding well for a strengthening in housing demand once the provincial job market shows more substantial gains.
- Saskatchewan: Rising mortgage rates during the quarter caused further deterioration in affordability for most housing types in the province. With the sole exception of townhouses edging lower, increases in affordability measures pushed levels further above long-term averages, indicating that some tensions may be building. RBC expects a strong rebound in the provincial economy this year and next which is likely to help ease such tensions.
- Manitoba: Sellers kept a firm hand on pricing by reducing the supply of homes available for sale in the province, resulting in home prices continuing to appreciate, particularly for two-storey homes, which is translating into further deterioration of housing affordability. Homebuyers are feeling more pressure with affordability measures standing close to long-term averages.
- Ontario: After setting new record highs this past winter, home resales in the province have since fallen precipitously due to a number of factors including the HST, changes in mortgage lending rules and the rush of first-time homebuyers to lock in low mortgage rates. Housing affordability in Ontario continues to reverse the considerable improvements achieved in late-2008 and early-2009 with measures increasing for a fourth consecutive time in the second quarter, representing some of the largest increases among the provinces.
- Quebec: Quebec’s record-breaking housing market rally proved to be unsustainable in the second quarter with resale activity settling to a pace comparable to levels witnessed in 2006-2007, which were considered to be fairly vigorous at the time. Affordability was hampered by home prices trending upward with RBC affordability measures now at or very close to the pre-downturn peaks and exceeding their long-term averages. Further increases in homeownership costs could have a more visibly adverse effect on housing demand.
- Atlantic Canada: The East Coast housing market was not immune to the significant downturn in activity that swept across the country since spring with housing resales falling back across the region to the lows reached during late-2008 and early-2009. Cooling demand loosened up market conditions, restraining home price increases and limiting the rise in affordability measures which remain very close to long-term averages. Overall, housing affordability in Atlantic Canada remains attractive and signals little undue stress at this point.
Interesting inside view of the banks and mortgages
Banks hold most of the cards in mortgage game
John Greenwood, Financial Post · Friday, Sept. 17, 2010
To understand the housing market and where it’s headed, it’s a good idea to take a close look at the big banks.
As providers of more than 60% of home loans in Canada they are major players, determining everything from who gets to be a buyer to what people can afford to pay.
It’s no surprise that mortgages are the biggest single asset class held by the banks. According to the Bank of Canada, the chartered banks had $495-billion of mortgages on their balance sheets as of this month, or about half of all outstanding home loans — and that doesn’t include the billions of dollars of home loans that the banks have sold into the Canada Mortgage Bond program.
Mortgage finance is big business for the banks, and it’s also a cash cow for several reasons. For one, because banking is an oligopoly in Canada, players pretty much get to decide how much they will charge. Unlike the United States where thousands of lenders compete tooth and nail for business, the industry in this country is concentrated in the hands of the banks and the credit unions, with a handful of smaller players focusing on borrowers the banks don’t want to deal with.
Bill Downe, chief executive of Bank of Montreal, recently explained it this way to an investor conference: “We don’t believe we compete on price.”
Another reason banks like the business is because the riskiest mortgages are insured by the Canada Mortgage and Housing Corp., a Crown corporation. In the event of a worst-case scenario, it is the taxpayer who shoulders the risk of default. The idea is to make mortgages cheaper and therefore more affordable for those at the lower end of the income scale.
In practice the banks don’t pass on all the positive lift from government support to their customers.
“The system is founded on a sovereign entity that guarantees risky mortgages,” said Peter Routledge, an analyst at National Bank Financial.
In the late 1990s, the banks added a new twist to the business model as they began securitizing, or selling, parts of their mortgage portfolio. Securitization had caught on in the United States long before it did in Canada, so lenders in this country were merely copying what they saw as a proven and highly beneficial innovation.
Essentially, it allowed them to swap baskets of loans that might not pay off for several decades for a lump sum. In other words, instant liquidity, which they could then use to make more home loans. The result: The market for Canada Mortgage Bonds has jumped to nearly $300-billion today from less than $10-billion in 2001.
During the financial crisis, while private sector investors fled, the Bank of Canada and the federal government kept the securitization market going, buying up tens of billions of dollars of securitized mortgages so Canadian banks could continue to lend. It proved to be a vital lifeline to the banks during the tough times, providing a key source of liquidity that was virtually absent from the global banking system.
As a way to keep the Canadian financial system going it was a great strategy, but there were unintended consequences.
For instance, banks soon came to rely on securitization to boost their results.
According to a 2009 BMO Capital Markets report, as much of 15% of quarterly bank profits were generated by securitization that year. The problem is that such gains are but a one-time boost instead of a steady stream of interest payments that would amount to a much bigger profit if the mortgages stayed on bank balance sheets.
“This isn’t a positive development,” said the BMO report by analyst Ian de Verteuil (now with the Canada Pension Plan Investment Board).
Yet another concern is the impact on consumer behaviour. Because of the profits that mortgages and securitization generate, banks have enormous incentive to grow the business, which they do by keeping interest rates low and easing loan conditions. Consumers have responded by taking the cheap money offered and bidding up house prices across the country. So even as real estate was collapsing in the United States and much of Europe, the market in this country — apart from a brief period in 2008 and 2009 — continued to expand.
Canadian household debt compared to income is now sitting close to record levels, according to Statistics Canada, and that’s prompted a spate of warnings from rating agencies and others. This week the OECD said in a report that ballooning consumer debt has left Canadians with “growing vulnerability” to adverse economic shocks.
Meanwhile, equity markets have been treading water since the start of the year and the economic recovery is looking increasingly wobbly. In a worst-case scenario a spike in mortgage defaults would likely result in a significant housing market correction.
The good news for the banks is that they are largely protected from such a situation because the riskiest mortgages are covered by CMHC insurance.
Experts, however, say that despite the concerns, Canada’s housing market remains relatively robust.
Over the past 12 months lenders along with the CMHC have taken steps to gently tighten mortgage conditions, shortening the maximum amortization and requiring borrowers to put up more capital. As a result, they say, the froth has come off the market and “balance” has returned.
The bottom line is that “the system is moving in the right direction,” said Mr. Routledge.: http://www.financialpost.com/news/Banks+hold+most+cards+mortgage+game/3541007/story.html#ixzz101gAAq47
One in five Calgary companies plan on hiring
One in five Calgary companies plan on hiring: Economists
Calgary job seekers could close the year on a happier note, with one in five Calgary companies planning to hire within the next three months, a sign the city’s economy is stabilizing after a rocky patch, economists say.
“It’s all very positive news,” said Randy Upright, CEO of Manpower’s Alberta region, adding only four per cent of employers expect to cut back their labour force between October and December.
He added that the numbers show a “more conservative kind of survey” than those seen during boom times.
As well, the number looking to add employees is double what it was in the same period last year, when only 11 per cent were in that position.
And it’s an eight percentage point increase over July to September when 15 per cent planned to hire.
With 71 per cent anticipating the status quo until the end of the year, “there’s a continuing sense of stability overall,” said Upright. “That’s what we’re really happy about.”
In 2009, hiring intentions in Calgary sank to their lowest levels in 15 years.
Todd Hirsch, senior economist with ATB Financial, speaking generally about Calgary’s economy, said stable is good after a couple years of volatility.
“The phrase I’ve been using lately is sunny with a chance of showers,” he said to describe the situation in the city.
With some uncertainty still in the air, Hirsch said employers aren’t rushing to add staff they may have to lay off should things take a turn.
Citing fluctuating oil prices and the low price of natural gas, “it’s enough to rattle people,” he said.
Manpower Canada’s employment outlook survey released today, which includes 1,900 employers across the country, found 23 per cent in Calgary are looking to hire, compared with 21 per cent nationally. Across Canada, the number planning to cut jobs was seven per cent, with both figures are better than during the same period last year.
Manpower said it’s the strongest national outlook in almost two years.
A Robert Half International employment report, which canvassed more than 1,000 executives in Canada about their hiring at the professional level, found a net 10 per cent plan to add jobs, a two percentage point increase over the previous three months.
Calgary has seen its unemployment rate start to decline, hitting 6.9 per cent in July, down from 7.5 per cent in June.
Hirsch said it looks worse than it is because Calgarians have been used to a rate of about three per cent.
However, while the province added 9,000 jobs in July, on top of 5,700 added in June, all those were attributed to the creation of part-time positions and in both months there was a decrease in full-time jobs.
In July, Canada added 129,700 part-time jobs but lost 139,000 full-time positions.
According to the Manpower Canada survey, the most optimism for job creation was seen in the mining and manufacturing-durable goods sectors, the best in a decade.
On Friday, the United States reported job gains of 67,000 in the private sector, which was better than expected, with the economy losing 54,000 jobs overall — better than the 120,000 predicted.
3 versions of the home buying future
Comment: CMHC has been dead on for the last 6 years. They call for a soft landing. I believe it.
CCPA says bubble to burst, CD Howe dismisses, CMHC predicts soft landing
Three significant housing reports published yesterday paint very different pictures of the future of Canada’s housing market.
CD Howe Institute says that in spite of recent dips in Canadian house prices, we will not experience a US-style housing crash because of our stricter government policies and tighter underwriting standards.
However, the report published by the Canadian Centre for Policy Alternatives, has a different view on what will ultimately cause the bubble to burst. David Macdonald, the economist behind the report entitled “Canada’s Housing Bubble: An Accident Waiting To Happen”, says that affordability and low interest rates are the issue.
With average house prices at 4.7 to 11.3 times Canadians’ annual income — much higher than historical comfort levels of between three and four times income, home owners may not be able to cope once interest rates goes back to their historic norms.
And finally, CMHC published the Canada edition of their housing market outlook in which the association forecasts a softer fall market with prices raising slightly in 2011.
CMHC also predicts that mortgage rates will gradually increase in the second half of 2010 and 2011.
Rate increases on hold for Bank of Canada
Preword: It looks like the Canadian interst rates can not rise above the US to much and the US will have to keep their rates the same for most all of 2010 and most of 2011. That means our rates will stay close to the same as now for another 18 months! Great news if you are on the variable rate mortgage.
We have variable rates are Prime – .65% right now, from good banks.
CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad
TORONTO, Aug. 18 /CNW/ – Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.
… “Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”
While Canada is in much better economic shape – it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job – it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.
For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.
Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”
The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.
“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”
As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/gps_aug10.pdf
Credit Score info
Credit Score Secrets
by Gail Vaz-Oxlade, for Yahoo! Canada Finance
Thursday, May 27, 2010
Ever wonder how that magical number – The Credit Score – is computed?
Whether you’re obsessing over your FICO score or your Beacon score, you’re likely shopping for credit. The FICO score was developed by Fair Isaac & Co., which began credit scoring in the late 1950s. The point of the score is consolidate your credit profile into a single number. The Beacon score is a brand name used by Equifax, the largest credit-reporting agency in Canada. While Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed, whether you get a loan or not is a numbers game: The more points you score on your credit app, the better you do.
There’s a reason you have to fill out so much information when you’re applying for credit. Everything counts. Your age, your address, and even your telephone number all have a role to play in whether or not you’ll get credit.
Young ‘uns and old folk are at a disadvantage since under 21 and over 65 likely means you aren’t working; no points for you. If you’re married, you’ll get a point for being “stable.” And while you might think that being divorced would work against you (all that spousal and child support), most creditors don’t give a whit.
No dependents? Zero points. You’re probably still gallivanting like a teenager since you haven’t yet “settled down.” One to three dependents? Score one point. You’re a solid citizen. More than three dependents? Score zero. Have you no self control! And don’t you know you that with all those mouths to feed you could get in debt over your head?
Your home address counts too. Live in a trailer park or with your parents? Bad risk, score zero points. You could skip town with nary a look over your shoulder. Rent an apartment? Give yourself one point. Own a home with a big fat mortgage and you’ll score major points since someone has already done some checking and you qualified for a mortgage. Own your home free and clear? Even better. You’ve proven you can pay off a sizable debt and now you have a pile of equity that the card company would love to help you spend.
Previous Residence? Zero to five years (some applications only go to three years), score zero points since you move around too much. No land-line: zero points. How the Dickens are they gonna find you when you fall behind in payments. Since they can’t use your cell phone to actually locate you physically, it doesn’t count.
Less then one year at your present employer earns you no points. Again, it’s a stability and earning continuity thing. The longer you’re on the job, the more likely you are to be bored out of your mind but you’ll score more points. And, not to overstate the obvious, the more you make the better.
The more willing you are to make your lender rich, the higher your score will be. Since the FICO score was originally designed to measure customer profitability, if you pay off your balance in full every month, you’re going to score lower than the guy who only makes the minimum payment and pays huge amounts of interest.
Scores range from 300 to 900 and if you manage to hit 750 or above you’ll qualify for the best rates and terms. Score 620 or lower and you’ll pay premium interest if you even qualify; 620 is the absolute minimum credit score for insured mortgages.
Your credit score can change quickly. Payment history accounts for about 35% of your credit score and just one negative report can drop your pristine score into the doldrums. Since scores are updated monthly, your bad behaviour won’t go unpunished for long.
The type of credit you have counts for about 10% of your score. And your current level of indebtedness accounts for about 30% so going too close to your credit limit is another way to deflate your score. One rule of thumb is to keep your balances below the 65% mark. So if you have a limit of $1,000, you won’t ever carry a balance that’s more than $650.
Having too much credit available can also hurt your ability to borrow since the more credit you have, the more trouble you can get yourself into. If you’ve got a walletful of cards, canceling credit you’re not using can be a good thing – for both you and your credit score – over the long haul. Careful though. If the card you’re eliminating is one with a long, positive history, you’ll eliminate what could be a very good record of your repayment when you cancel the card. You’d be better off cutting up the card so you aren’t tempted to use it, while you establish a track record (six months or more) before you actually cancel the account.
Credit shopping can also cost you points. Since about 10% of your credit score relates to the number and frequency of new credit enquiries, applying willy nilly for new credit will end up costing you. However, it’s only when a lender checks your score that this registers on your score. Checking your own credit report/score is considered a “soft” inquiry and does not go against your score.
http://ca.finance.yahoo.com/personal-finance/article/yfinance/1623/credit-score-secrets