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Beacon score

Your Canadian Credit Bureau report provides crucial information in your quest for the lowest mortgage rate in Canada. The primary source of information that the bank has on you is from this report. You need to know how to find the potential problems before the bank so you can be prepared for their questions.

Beacon Score
The first thing most bankers look at in your Canadian Credit Bureau is your Beacon Score. This is a summary of your credit worthiness as determined by an automated system at the credit bureau. Many bankers rely heavily on this score for loan/mortgage approvals and the interest rate you qualify for.

If you want the best mortgage rate in Canada, you should plan on having a beacon score above 600. If you have a score over 750 on your credit bureau report and have investments in addition to your home, you will be able to choose from the best rates, products and terms. A beacon score over 750 is considered excellent.

If the beacon score on your credit bureau report is below 600, you will face an uphill battle to get a mortgage. This considered a poor score. The rate is likely to be a little higher than normal, depending on your circumstances.

Credit scores can change daily. Depending on the situation, it may be fairly easy to increase your score and get approved at a good rate for your mortgage. An online monitoring service will keep you updated on where you stand whenever something changes on your credit bureau report.

There are some lenders who will look beyond just the beacon score in your Canadian Credit Bureau. Some banks will give the more experienced loans officers the authority to approve mortgages if a person has bad marks on their Canadian credit bureau report. A mortgage broker mortgage broker can help find a lender willing to offer a good interest rate if you have issues on your credit bureau report.

Collection Notices
Your Canadian Credit Bureau Report shows all collection, bankruptcy and Orderly Payment of Debt (OPD) activity for a full six years. It is important to pay attention to this section because disputed bills, old, forgotten bills and current collection activity shows up here. Banks will not give you a loan if there are unpaid bills in this section. Many banks will not even lend you money to pay off those bills. These must be cleared off your credit bureau report ASAP. The beacon score really takes a beating if you have an unpaid entry in this section of your Canadian credit bureau report.

Late Payment History
Late payments on your Canadian credit bureau report show up as an "R", "I" or "O" rating. The importance of the late payment shows up as a number from 1 to 9. A 1 is the best rating. It shows that you have paid your bill within 30 days of the due date.

An R2/I2/O2 shows an uncaring attitude toward debts. If you have one or two, no one cares. However, if you have several of them, bankers start to get nervous. The general rule is that a "2" rating is not serious, however, loans and mortgages have been turned down with as few as three "2's" if the rest of the mortgage application is not strong. The best source of evaluating the importance of "2" ratings is to have a conversation with a mortgage broker You may still qualify for the lowest mortgage rate in Canada.

A "3" rating on your Canadian credit bureau report indicates some financial problems. If it is current, you need to have a good explanation to get the best mortgage rate. If the "3" is one or more years old, you still need an explanation, but many lenders will try to overlook it on an otherwise strong application. If you have more than one "3" at any time within six years it may be a challenge to get the best mortgage rate, but you will still qualify for a mortgage somewhere. Contact your mortgage broker to discuss your situation.

A "4" or higher rating on your Canadian credit bureau report means serious trouble. If you have even one of these on your credit bureau report, many banks will not even entertain giving you a loan or a mortgage. Your best bet is to contact a mortgage broker and work out a strategy to qualify for a mortgage. It is highly unlikely that you would qualify for the best mortgage rate in Canada, but you may still qualify for a mortgage. If you have more than one "4" in the past year, the only way to qualify is to have a good explanation for it or have a cosigner. However, if the "4" is two or more years in the past and the rest of the application is strong, you may still qualify for the best mortgage rate in Canada.

A rating of "9" on your Canadian credit bureau report is as bad as it gets, other than a bankruptcy. Most lenders will not provide a mortgage with someone that has a current "9" rating. However, there is still hope. A good explanation combined with the mortgage broker's recommendation to the right lender may do the trick. He/she may still be able to get you a good mortgage rate. If the "9" rating is two or more years old, most lenders will shy away from the deal, but your mortgage broker may know of a lender or two who would be willing to provide a mortgage for you.

A bankruptcy showing on your Canadian credit bureau report is a serious thing regardless of how long ago it happened. If you have only had one bankruptcy, the listing on the Canadian credit bureau report will disappear at the end of the sixth year. However if you have had more than one bankruptcy, all of them will be on your Canadian credit bureau report forever.

If you have had one bankruptcy, you may still qualify for a mortgage soon after the bankruptcy. The trick is to get establish a good credit rating right away. You can get a secured credit card, a car loan, a furniture or appliance loan etc. at high interest rates. If you are fortunate enough to be reading this before you decalare bankruptcy, try to continue payments to a couple of creditors (like your home and car) through the bankruptcy. If you can do this, you will be able to get new credit soon after the bankruptcy. It won't be easy, but your mortgage broker may be able to help you. Even if you haven't been able to keep some lines of credit open through the bankruptcy but have re-established some credit, you may still qualify for a mortgage. The mortgage interest rate may be a little high, but at least you would be able to own a house.

If you have too many debts showing on your Canadian credit bureau report you may still have a chance of qualifying for a mortgage. One way to handle it is to somehow consolidate your loans. Another way would be to get a cosigner to add income to your application. You may also have some income that normally doesn't show up on your income tax return that can be used by some lenders. A more complete discussion of income can be found on the Mortgage Calculator page.

Your mortgage broker would definitely be a good resource if you have a strong Canadian credit bureau report but the debt load is a little high. Even if your own bank has turned you down, if there is a way to make the numbers work, your mortgage broker will find it.

Many times when the debt load is starting to build up, you may go over the limit on your credit cards. The credit company is happy to let you do this once in a while, but your beacon score really takes a hit. Whenever possible, stay at least 30% below the limit on your your credit lines/cards. If you can do this with all your credit, the Canadian credit bureau report will reward you with a very good beacon score and the bankers will be chasing you to give you more and more credit at the best terms they can offer.

RRSP vs. TFSA which to choose

Roma Luciw

Globe and Mail Update

Older and wealthier Canadians, as well as students and young couples without children, are among those who should look at parking their money in a Tax-Free Savings Account (TFSA), says a report released Wednesday.

Since the birth of the TSFA on Jan. 1, Canadians who can't afford both have been struggling to choose between a TFSA or Canada's long-standing tax shelter savings product, the registered retirement savings plan (RRSP).

A report from BMO Capital Markets pinpointed some groups of people for whom the new TFSA “should be a more attractive investment option” than an RRSP: Younger Canadians, including students and the working but childless, who are in a low-income stage of their life and have excess cash after paying down their bills and drawing down debt. Another is affluent people, who have money to save after maxing out their RRSP contribution and can use the TSFA to supplement their retirement savings.

The BMO report found that of those groups, “TFSA contributors tend to be older and more affluent, suggesting younger people are using whatever savings they have to first pay down debt.”

By all accounts, the TFSA has proven to be enormously popular with Canadians. Between Jan. 1 and the end of June, about 3.6 million people set up a TFSA, stockpiling $12.4-billion, according to data from Toronto-based financial research firm Investor Economics and pollster Ipsos Reid.

Globeinvestor Personal Finance forum

Weigh in on whether you would stash some extra money into an RRSP, RESP or a TFSA.


Part of the popularity of the TFSA can be attribute to timing. It arrived at a time when a global economic recession had for the first time in years led people to curb their spending and store away some of that money.

On average, Canadians are now saving 4.8 per cent of their personal income, compared to an average rate of only 3.7 per cent in 2008 and 3.8 per cent over the first five years of this decade when the economy was booming, the BMO report said.

“Canadian savings rates have increased as a direct result of great concern, more frugality, and a certain level of uncertainty about the outlook...,” said BMO chief economist Sherry Cooper. “Of course, people who have suffered unemployment will not be opening TFSAs because they are living off their savings. But on the whole, people are recognizing that the only way to rebuild their savings is to spend less than they earn.”

Because people fear spending money during periods of economic turmoil, she expects Canadian savings rates may edge even higher from their current rate.

TFSAs allow people to save or invest $5,000 a year for any purpose – retirement, education or a rainy-day fund – without paying tax on investment or capital gains when the money is withdraw at any time down the road. You can carry forward unused contribution room for future use and you can use your TFSA to invest in savings, GICs, mutual funds, stocks and bonds.

The beauty of the TFSA, financial experts say, is that it gives people flexibility in terms of how to use their money.

For instance, the BMO report noted that under the Home Buyers' Plan, first-timers can tap into their RRSP assets to help come up with the necessary down payment. But now first-time home buyers can also turn to their TFSA, which offers them more flexibility in terms of replenishing the depleted asset.

“Under the Home Buyers' Plan, the plan holder is required to re-contribute to the RRSP over a period of 15 years, whereas for the TFSA no repayment is required and the amount of the withdrawal is added to future TFSA contribution room,” BMO said, adding that funds from a TFSA can also be use for renovations or other home improvements.

TFSAs can also help retirees by providing them with additional opportunity to shelter income after they turn 71, the BMO report said, by allowing them to put money into a TSFA after they are no longer eligible to contribute to an RRSP. “In addition, if retirees are required to take more income than they need from a RIF, they can contribute to a TFSA out of the excess and thus continue to shelter investment earnings from tax,” the report said.

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HST facts

Most products we buy will see no new tax

Most of the products we buy every day will see no new tax. There are a lot of products and services on which we already pay the PST and GST. For these products, like cable and phone services, new cars and adult clothing, there won't be a change. On July 1, 2010, instead of paying 13 per cent tax to two different governments (8 per cent provincial and 5 per cent federal), there will be one tax — still 13 per cent, collected by the federal government.
No PST now, no HST after July 1, 2010

There are some other items now that have no sales tax on them, such as basic groceries, municipal transit and prescription drugs. On July 1, 2010, there will still be no HST charged on these items.
Point-of-sale rebate

Other products will be eligible for a point-of-sale rebate for the provincial part of the HST. This means you will only pay the 5 per cent federal portion of the HST. These include print newspapers, books (including audio books), diapers, children's clothing and footwear, children's car seats and booster seats, feminine hygiene products, and qualifying prepared food and beverages sold for $4.00 or less.
No new tax for 83 per cent of products and services

In total, about 83 per cent of products and services purchased by consumers will see no new tax. Only 17 per cent will see a new tax, things like personal and professional services such as hairstyling and legal fees, as well as energy costs including home heating fuel and electricity.