When you are planning to purchase or refinance a home, your personal credit history factors heavily on the lender’s decision to approve your mortgage, and at what interest rate.

While it is true that they also take into account the applicant’s strength of income and overall debt load, ability to manage the current debt speaks volumes to mortgage lenders and could influence the lender’s decision, so it is beneficial to understand the process before getting started.

In Canada there are two companies, Equifax Canada and Trans Union, that collect credit information and generate a report, known as a credit bureau. Equifax is predominantly used by mortgage lenders so we will focus on their scoring criteria. Equifax analyzes each bureau and awards the individual an overall score, known as a beacon score or FICO score. In Canada the score can range from 300 up to 900, with the highest score being the goal.

The beacon score itself is derived from five distinct characteristics of your credit history, each playing an important part. Clearly understanding these components will show you how to make your credit score work in your favour and correct any old patterns that could be dragging your rating down.

Approximately 35% of your beacon score is determined by your previous credit patterns. This is the largest consideration when generating your beacon score and therefore should be treated as sacred.

It is extremely important to make at least your minimum payment on any loan or credit card by the required due date. The size of the minimum payment does not matter, only the fact that you are on time. There is no discretion here so don’t lose points on this one.

The second most important component used to determine your beacon score is how much debt you currently have. Equifax allocates 30% of your score here. Carrying a balance of more than 75% of your total limit is a big no-no. Even more damaging to your score is exceeding your credit limit, so be wary of getting into that habit.

If your credit balances are over the 75% marker and you are unable to pay them down quickly, consider requesting an increase in your credit limit. This will improve your beacon score and look better to potential mortgage lenders, providing you don’t rack it back up again.

The third determination, weighing in at 15%, is the length of time your accounts have been active. Opening and closing credit accounts every couple of months does not score high with Equifax. They are looking to see a long term trend of strong borrowing history here, not constant rearranging.

The final two components, both worth 10% of your beacon score, are determined by your eagerness to apply for credit and the types of credit you have.

Continually allowing companies to check your credit does not earn you any points so be cautious of that habit. The more inquiries you have, the lower your score will be dragged down.

Mortgage lenders will be watchful as well, because to a lender this could be considered a lack of control with your credit and you may end up over your head in debt--not a ride they are willing to go on with you.

The last consideration refers to the type of trade lines or accounts you have. Credit cards and lines of credit are called revolving, meaning they can be used, paid down, and used again. There is no specific end to this type of debt.

An alternative to this is installment debt, which is set up with the end in mind. Car loans and student loans are an example of installment debt. Having a mix of both revolving and installment debt will earn you points in this category.

Equifax also believes having more than five active trade lines is excessive. If you find yourself with ten credit cards in your wallet, consider consolidating the balance onto one or two cards and cancelling the others.

As mortgage brokers only have to check your credit bureau once to find a good fit with over forty lenders, this is just one more reason why an experienced broker is an invaluable ally when you’re looking to arrange a mortgage and keep your credit score high.