Personal Finance

Ask me about Credit Scores

  • Last Updated:
  • Oct 26th, 2017 7:09 pm
[OP]
Jr. Member
Oct 30, 2011
111 posts
47 upvotes
GTA - Toronto/Missis…

Ask me about Credit Scores

I thought it might be useful to start a thread for all the people curious about credit scores.

I work in the lending department of a large financial instituion and have acquired significant knowledge of credit scores and their relation to approvals.

So ask away.

I will also answer questions about how to improve your credit score and what we look for when considering applications.
4546 replies
Member
Feb 11, 2010
200 posts
39 upvotes
Which is more important, credit utilization or credit-to-income ratio?

My current situation is:
- annual income of ~60k
- 3 cards with combined limit of 20k+, newest one is about 3 months old
- no other loans or debts
- FICO score estimate on the calculator was 715-755

I am considering getting my limit lowered on one of my cards, since I only use it a couple of times a month. I'm trying to weigh the benefits between lowering my credit-to-income ratio (currently >30%) and maintaining a low credit utilization (<15%)
Assuming everything else holds constant, if I were to lop 5k off my limit and get my credit-to-income ratio closer to 25%, but as a result raise my utilization to 20%, how do you think it would affect my credit score?

Don't have any immediate plans to get any large loans (car or mortgage...not that I could ever afford a mortgage in Vancouver) but I am interested in how my situation might be evaluated.
Deal Addict
May 31, 2007
4293 posts
1436 upvotes
How many points on a "hard hit" come off your score when doing a credit check?
Also do you think someone is less creditworthy if they close an old credit account? ( in good standing)Is this portion of the rating system flawed because of that?
Deal Addict
User avatar
May 19, 2005
3294 posts
352 upvotes
Markham
How many credit card/lines is too many? Assume balance is paid off each month and utilization is 10-20%.

8 credit cards and 2 unsecured credit lines with total credits limits of 100% of your annual gross income too much? How about 200%?
Newbie
Sep 25, 2007
83 posts
My current situation is -
- annual income of ~65k
- 1 credit card with a limit of $500, pay it off monthly upon receiving the bill (no late payments on it)
- 2 RRSP loans, one with ~$350 remaining and a new one for $5000
- FICO score at the bank was 690 about two weeks ago and pretty much the same on the estimator tool

Previously I had some credit card issues and did a credit consolidation through some agency; they negotiated lower rates and payments and closed the credit cards - all that debit has been paid off for about 5 years now.

I took out the two RRSP loans to help show recent history of being able to manage credit and rebuild a repayment history.

I'm wondering what I can do to further increase my credit score as I'd like to position myself to apply for a mortgage in April of 2012 - I would have a co-signer. I'm thinking the total mortgage would be for $350k - $420k where i would be putting ~$100K down.

What do you think I can do to improve my score and the chances for getting this mortgage?

Thanks.
Deal Addict
Feb 4, 2008
3115 posts
170 upvotes
Call your credit card company and get the limit raised to $3K.

You would get the mortgage you wanted now without an issue.
www.mortgagecalculatortoolkit.com (cut and paste it)

Do your mortgage math correctly!
[OP]
Jr. Member
Oct 30, 2011
111 posts
47 upvotes
GTA - Toronto/Missis…
somethingorother wrote:
Oct 31st, 2011 1:52 pm
Which is more important, credit utilization or credit-to-income ratio?

My current situation is:
- annual income of ~60k
- 3 cards with combined limit of 20k+, newest one is about 3 months old
- no other loans or debts
- FICO score estimate on the calculator was 715-755

I am considering getting my limit lowered on one of my cards, since I only use it a couple of times a month. I'm trying to weigh the benefits between lowering my credit-to-income ratio (currently >30%) and maintaining a low credit utilization (<15%)
Assuming everything else holds constant, if I were to lop 5k off my limit and get my credit-to-income ratio closer to 25%, but as a result raise my utilization to 20%, how do you think it would affect my credit score?

Don't have any immediate plans to get any large loans (car or mortgage...not that I could ever afford a mortgage in Vancouver) but I am interested in how my situation might be evaluated.


Sorry mate, you are looking at your situation in the wrong manner.

To have the best possible credit score in your situation, I would not decrease any of your credit limits. Essentially, you want your average statement balances to represent less than 30% of your total available credit. For example, if you have a combined income of $30K, you do not want to have more than $9K in total used credit.

To be a great candidate, you want to have a good credit score, generally 700+ and have a GDS and TDS below 32% and 40% respectively.

If you don't know these terms or want me to break down your situation, please feel free to PM me.
[OP]
Jr. Member
Oct 30, 2011
111 posts
47 upvotes
GTA - Toronto/Missis…
Jungle wrote:
Oct 31st, 2011 2:48 pm
How many points on a "hard hit" come off your score when doing a credit check?
Also do you think someone is less creditworthy if they close an old credit account? ( in good standing)Is this portion of the rating system flawed because of that?

A hard hit can have different effects on your score. Basically, your inquires (or HARD HITS) represents 10% of your overal credit score. Typically, if you have had no inquiries for 12 months, you will maximize that 10%. Having 3-4 hard hits every year is not a big deal at all. In fact, if you are going to have 3-4 hits, it is better to have them in a short period of time (less than 2 weeks) because then they will be grouped to an extent meaning the impact to your score will be less.

So. for example, suppose your credit score is 750, if you go out and get 8+ inquiries, your score will likely drop by 10% or 75 points and you will land at 675 or so.

Now, for old accounts. PLEASE PLEASE PLEASE do not close your old accounts. Average age of accounts represents a significant impact to your score. For example. suppose Bill and Bob have a credit score of 750. Bill's oldest card is 10 years old and Bob's oldest card is 5 years old. Suppose both these fellas want to go and apply for a new credit card and they are approved for it. Well, Bill's credit score will not drop as much with the new account as Bob's because his average age of accounts is much healthier.
[OP]
Jr. Member
Oct 30, 2011
111 posts
47 upvotes
GTA - Toronto/Missis…
YUP5588 wrote:
Oct 31st, 2011 4:33 pm
My current situation is -
- annual income of ~65k
- 1 credit card with a limit of $500, pay it off monthly upon receiving the bill (no late payments on it)
- 2 RRSP loans, one with ~$350 remaining and a new one for $5000
- FICO score at the bank was 690 about two weeks ago and pretty much the same on the estimator tool

Previously I had some credit card issues and did a credit consolidation through some agency; they negotiated lower rates and payments and closed the credit cards - all that debit has been paid off for about 5 years now.

I took out the two RRSP loans to help show recent history of being able to manage credit and rebuild a repayment history.

I'm wondering what I can do to further increase my credit score as I'd like to position myself to apply for a mortgage in April of 2012 - I would have a co-signer. I'm thinking the total mortgage would be for $350k - $420k where i would be putting ~$100K down.

What do you think I can do to improve my score and the chances for getting this mortgage?

Thanks.

For consumer proposals, they will be off your report 3 years after all payments have been made. So you should be good with this.

Your credit score is fine. The problem lies in your credit card. Typically, lenders for mortgages like to see at least $1500-2500 in revolving credit experience. I would suggest you ask for an increase on your credit card as well.

I also think you should be able to get the mortgage without a co-signer.

Also, try to pay you credit card off 5 days before your statement is issued so that your statement balance is $0. This will get you into the 700's easily.
[OP]
Jr. Member
Oct 30, 2011
111 posts
47 upvotes
GTA - Toronto/Missis…
Jonavin wrote:
Oct 31st, 2011 4:04 pm
How many credit card/lines is too many? Assume balance is paid off each month and utilization is 10-20%.

8 credit cards and 2 unsecured credit lines with total credits limits of 100% of your annual gross income too much? How about 200%?


Honestly, it doesn't matter how many you have as long as you have a healthy debt service ratio.

I have seen people with 25 accounts and they are excellent risks for lenders.

Use the following link to calculate your TDS / GDS:

http://www.lendingmax.ca/artman/gross-d ... -ratio.php
Deal Fanatic
User avatar
Apr 16, 2007
6844 posts
1751 upvotes
Financial District B…
dealwhere wrote:
Oct 31st, 2011 5:40 pm
A hard hit can have different effects on your score. Basically, your inquires (or HARD HITS) represents 10% of your overal credit score. Typically, if you have had no inquiries for 12 months, you will maximize that 10%. Having 3-4 hard hits every year is not a big deal at all. In fact, if you are going to have 3-4 hits, it is better to have them in a short period of time (less than 2 weeks) because then they will be grouped to an extent meaning the impact to your score will be less.

Sorry but I have to firmly disagree with you here.
When we see 3-4+ inquiries all for the same credit products and all within a short period it automatically draws red flags.
Its not uncommon for desperate people in desperate need to seek credit by shotgunning their application everywhere.
Deal Addict
Feb 4, 2008
3115 posts
170 upvotes
dealwhere wrote:
Oct 31st, 2011 5:49 pm
Honestly, it doesn't matter how many you have as long as you have a healthy debt service ratio.

I have seen people with 25 accounts and they are excellent risks for lenders.

Use the following link to calculate your TDS / GDS:

http://www.lendingmax.ca/artman/gross-d ... -ratio.php
Your TDS/GDS has absolutely no effect on your actual credit score as your income is not reported to the credit agencies.

It will however affect any additional credit you may or may not be granted.
www.mortgagecalculatortoolkit.com (cut and paste it)

Do your mortgage math correctly!
Deal Fanatic
User avatar
Apr 16, 2007
6844 posts
1751 upvotes
Financial District B…
sslinn wrote:
Oct 31st, 2011 6:53 pm
Your TDS/GDS has absolutely no effect on your actual credit score as your income is not reported to the credit agencies.

It will however affect any additional credit you may or may not be granted.

I was just going to post that (as I was pulled away by a phone call) tdsr and gdsr have no impact on credit scores

Some financial institutes don't really care about credit scores and grant credit mainly on tdsr
Deal Guru
User avatar
Dec 7, 2009
13391 posts
1223 upvotes
I have an idea for a business model that will allow people to see their own personal credit scores whenever they want, online with a personal account, and charge businesses for viewing other people's scores using the same method. I see several web-based marketing opportunities with my site. I intend to streamline this antiquated industry, and force the current credit bureaus to become more competitive and modern.

If I wanted to start my own credit reporting agency, to compete in the free market with Equifax and Trans Union, how would I go about starting my business?
In a perfect system, corporations would fear the government and the government would fear the people. - David Wong

Check out caRpetbomBer's picks in this thread.

Top