Learn About Your Credit

1. Minimum Credit Requirements To Buy a Home in Canada
2. Get a FREE Copy of Your Equifax Credit Report
3. Get a FREE Copy of Your Transunion Credit Report
4. Your Credit Report: Understanding The Ratings
5. How Credit Scores Are Calculated
6. Steps To Improve Your Credit
7. Re-establishing Your Credit After Bankruptcy
8. More on Managing Your Credit

Minimum Credit Required To Buy A House in Canada

To purchase a home in Canada with the minimum down payment (5% down) you need CMHC (or another mortgage) to insure your mortgage. This insurance guarantees banks against loss in the event you default. This guarantee is like having the government co-sign for your mortgage. Here is what CMHC is looking for to insure your mortgage.

1) At least 2 credit items open and both being reported to the credit bureaus for at least 1 year. A credit item can be a loan, line of credit or credit card.
2) A minimum beacon score of 600
3) You never want to miss a minimum payment but more specifically you never want to be more then ONE MONTH late. Being 60 days past due on any of your credit items in the last 2 years can be a reason for CMHC to deny you mortgage insurance.
Failing to meet any of these conditions does not mean that you will be excluded from being able to purchase a home. It may however require you to put 20% or more down to be approved. Establishing your credit, making your minimum payments on time and having 1 or more years of clean credit history on 2 seperate cards is your best route to getting approved by almost all institutional lenders.

Free Equifax Credit Report

There are four ways to obtain a copy of your free Equifax credit report. Although the free credit report does not include the credit score, the credit score can be added for an additional $11.95. The report will be mailed to you within 5-10 days. For $23.95 you can obtain your credit report and credit score online.

1) Phone Call 1-800-465-7166 to request a copy of your report by phone.

2) Mail a written request with copies of two pieces of identification to:

Equifax Canada Inc.
Consumer Relations Department
Box 190 Jean Talon Station
Montreal, Quebec
H1S 2Z2

3) Fax a written request with copies of two pieces of identification to: 514-355-8502

4) Email a request to: consumer.relations@equifax.com

Free Transunion Credit Report

You can also request a copy of your free Transunion credit report. Transunion is another credit reporting agency. In some cases information will be reported to one credit reporting agency and not the other.

Obtaining a copy of your credit file on a regular basis is an important step in managing your credit.

Consumer Credit File: Payment Ratings

“R” means “REVOLVING or OPTION” (open – end account; ie credit cards)
“I” means “INSTALLMENT” (fixed number of payments; ie leases or loans)

R0 – I0 – Too new to rate; approved but not used
R1 – I1 – Paid within 30 days of payment due date or not over one payment past due
R2 – I2 – Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due
R3 – I3 – Pays (or paid) in more than 60 days from payment date, but not more than 90 days, or not more than three payments past due
R4 – I4 – Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due
R5 – I5 – Account is at least 120 days overdue but is not yet rated 9
R7 – I7 – Making regular payments under a consolidation order or similar arrangement (i.e. Credit Counselling through Third Party)
R8 – I8 – Repossession (voluntary or involuntary return of merchandise).
R9 – I9 – Bad debt; placed for collection.

How Credit Scores Are Calculated

Payment history is 35%
Bankruptcies, late payments, past due accounts and wage attachments.

Amounts owed is 30%
Amount owed on accounts, proportion of balances to total credit limits. It has been rumored that carrying less then 35% of the maximum amount of credit available on an account is advantageous. Anything about that amount could weaken your credit score.

Length of credit history is 15%
Time since accounts opened, time since account activity.

New credit is 10%
Number of recent credit inquiries, number of recently opened accounts.

Types of credit is 10%
Number of various types of accounts (credit cards, retail accounts, mortgage).

Steps To Improve Your Credit

1. Order a copy of your credit report. Review it carefully and correct any significant errors.

2. Pay your bills on time. Although this seems obivous, it is one of the most important aspects to ensuring credit will be available to you when you need it.

3. If you have a questionable credit history, open a few new credit accounts, use them responsibly, and pay them off on time. You don’t have to pay the entire balance every month. Carrying a balance will NOT negatively affect your credit score as long as you PAY THE MINIMUM on time every month.

4. Don’t open credit accounts you don’t intend to use. Having five or six of the same type of credit card (Visa, for example) does not work in your favour.

5. Note that having a credit card or instalment loan can help boost your score, so long as you don’t have too high a balance (relative to the maximum credit limit) and you pay it off in a timely manner.

6. Keep your balance low in relation to your available credit. If your credit limit is $10,000, keeping your balance below $2,500 (or 25 per cent of your limit) will improve your score.

7. Pay off your credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (called a “balance transfer”) and closing out the old account can hurt your score.

Re-establishing Your Credit After Bankruptcy

Re-establishing your credit. Obtaining a credit card 1 year after a bankruptcy can sometimes be a tricky task. I would highly recommend obtaining a secured credit card. A secured credit card is just like a regular credit card, however for every $1 you put down as a deposit, you will get $1 in credit. There is virtually no risk to the issuer so you are almost guaranteed to be approved. This will help to build that re-established credit that will be required when it comes time to applying for a mortgage.

Here are a couple of companies that issue secured credit cards.

Capital One – minimum $75-$300 deposit required
Peoples Trust – minimum $500 deposit required

More on Managing Your Credit

The Financial Consumer Agency of Canada has compiled a detailed guide on Understanding Your Credit Report & Credit Score. With more TIPS on understanding and managing your credit. Follow the link to open the PDF.