What goes into my credit score?

The factors that go into your credit score, and the percentage weight of each are as follows:

• Payment history (35%) - Indicates whether you have made your credit card payments, loan payments and other payments on time. Even making one payment after the due date can cause your score to drop by as much as 20 points.
• Amounts owed (30%) - Compares how much you owe to your credit limits with various lenders.
• Length of time in file (15%) - Indicates how long you have had credit accounts. Typically lenders want to see three "trade lines" that have been open for at least a year.
• New credit (number of inquiries) (10%) - Shows how often you are looking for new credit and how you handle accounts you have recently opened
• Type of credit (10%) - Considers the type of loans you have - car loans, lines of credit, credit card balances

By the way, the score will be in the range of 300-900. If you are at 720 or above, you will likely qualify for the best mortgage rates. As your score declines, you pay a higher rate. If you are below 500 or so, you will not likely to be able to get credit, unless you have great equity, and even at 500, you will be paying an additional 3.5-4 % in interest.

It is advisable to check your credit score at least once a year. (Statistics say that 70%+ of credit reports include errors, and they usually aren't in your favour.) You can get a mailed copy of your credit report (without your credit score) once a year. Info is available at Equifax (www.equifax.ca), TransUnion (www.transunion.ca), Northern Credit (www.creditbureau.ca).

(National Post, 15 Aug 2008, Page P1)

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BY GARRY MARR Chart of the day, Page FP2
National Post
15 Aug 2008

Falling Alberta home prices dragged down the Canadian housing market, which recorded its second consecutive monthly decline in July, the Canadian Real Estate Association said yesterday. The question is no longer whether Canadian house prices will drop...read more...

Related:
Alberta leads home price drop
Vancouver’s July home sales drop 44% from last year
Vancouver’s July home sales drop 44% from last year

Tech Tags: National Post newspaper F Inanc Ial Po St

Calling Chicken Little!

It was quite interesting looking at the three more serious Toronto newspapers today. (Sorry, but I don't usually look at the Sun.)

The background is that the Canadian Real Estate Association yesterday released the sales figures from July. Nationally, the average sale price was down 3.6% from a year earlier, while in Toronto the average sale price was up 1.5% from this time last year.

The Financial Post had a block headline across the first page: HOUSING WOES BUILDING. The second paragraph was rather startling: "The question is no longer whether Canadian house prices will drop but whether they will sink to levels seen in the United States, where home prices in some markets have crumbled by as much as 30% in the past year." The only problem is that nowhere in the article is anyone quoted suggesting that that is a likely scenario.

To their credit, the Post did give the average price change, and unit sale change (in absolute numbers and percentage change) for Calgary, Edmonton, Vancouver, Toronto, and Montreal on the first page.

The Toronto Star headline, "House values sinking into read" ran under a graphic of the price change over the one-year period nationally, in Toronto, Calgary, and Vancouver. In between was a cartoon of a water-front house, with a reflected red down arrow in the water. The size of the arrow would suggest a decline far above and beyond what the stats show.

More troubling in the Star was the secondary headline, "Average national prices decline 3.6 per cent in July sparking fears U.S. housing woes are moving north." That concern is addressed in the first paragraph, "Canadian average home prices have fallen for the second month in a row, raising concern by economists that the housing market may have been caught in the undertow of a U.S.-based slowdown." Thirteen paragraphs later the U.S. situation is next mentioned: "So far, no one is saying the Canadian market is going the way of the U.S. market, where a credit crunch has seen median home prices year over year fall by 14 per cent, and where some hard-hit areas have seen values drop by 50 per cent." The closest a comment comes to justify the concern is in the following (final) paragraph, quoting Doug Porter, BMO Capital Markets' senior deputy economist from an economic note: "'While we still doubt that Canada will stage an instant replay of the trauma in the U.S. markets, even a mild version would be bad news,' Porter said."

In The Globe and Mail's Report on Business the story on made the third page (although there was a preview on p. B1), with the headline "Soft Ontario housing market fuels concern." Lori McLeod, identified as "Real Estate Reporter," put things in context in her third and fourth paragraphs:

"So far, the drop in average home values has mainly radiated from Calgary and Edmonton, where July prices fell by 7.8 per cent and 5.3 per cent respectively from the previous year.

It wouldn't be surprising to see prices in these and other large Western cities slump by as much as 20 per cent in the near term in a correction of markets that got ahead of themselves, said Benjamin Tal, senior economist at CIBC World Markets Inc."

This article also quoted Douglas Porter, although with a different job title:

"A sharp drop in consumer sentiment helped push sales down 10.9 per cent from the year before, and the latest figures drive home the impact that excess supply is having on prices, Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., said in a research note.

"'While we still doubt that Canada will stage an instant replay of the trauma in U.S. markets, even a mild version would be bad news,' Mr. Porter said."

The Globe article also included a salient fact that I didn't see mentioned elsewhere: "Listings also remained near record levels in July, with 50,782 properties listed for sale in major markets. It is the second-highest level on record, and down a slight 0.2 per cent from the peak hit in May."

So, what's the bottom line? Why did I go on at such length about this? Firstly, as someone who has read newspapers since I was a kid, I am still disappointed when I see such shoddy reporting. Making assertions that aren't backed up is unacceptable.

But more to the point, in the U.S. more than 20% of mortgage were in their version of the sub-prime market (much looser rules, and much freer access to credit than here). When people with no equity were foreclosed on, it makes it much harder for their neighbours to get full value for their home. And when a number of people go into foreclosure, or are "upside down" on their mortgage (owe more than the house is worth) that affects everyone in the area. That is not the case here, and there is no sign it would be.

With the economy slowing down, did anyone really expect house prices to continue to advance? Long term, home ownership is the way most Canadians have relied upon to build a fair part of their net worth. Or, as the saying goes, if you rent, you're paying off your landlord's mortgage - why not build some equity?

(The links to the newspaper articles, and the Canadian Real Estate Association press release are: [Star article:] http://yourhome.ca/homes/article/478851; [Globe:] http://www.theglobeandmail.com/servlet/story/LAC.20080815.RREALESTATE15/TPStory/?query=Lori+McLeod; [CREA:] http://creastats.crea.ca/natl/. The Post article can be linked to from the next blog posting, which is shown above.)