A credit score is a statistical formula that translates personal information from your credit report and other sources into a three-digit score. For example, when you fill out a loan application to buy a house or condo on West Toronto, pieces of information from the application along with information from your credit report will be used to compute a score that indicates to the lender the statistical probability that you will become delinquent on the loan.

Beacon scores are the first thing most financial institutions look at when sizing up a borrower. They're a single number that summarizes your credit situation and shows lenders what kind of risk you're likely to be as a borrower.

The name Beacon is actually a brand of issued by Equifax, the largest credit-reporting agency in Canada. Trans Union, another widely used agency, also issues credit scores under a different name.

Credit scores are based on a complex formula. They range from 300 to 900, with 700 being near average. Individual scores can change every month.

While no one knows the exact formula (except the inventor, Fair Isaac Corporation), Beacon scores are roughly based on:

-Previous payment history (About 35% of score)

-Current level of indebtedness (About 30% of score)

-Length of credit history (About 15% of score)

-Number/frequency of new credit enquiries (About 10% of score)

-Types of credit you have (About 10% of score)

A high credit score is about 750 or above. This typically qualifies borrowers for the best possible rates and terms. A low score is below 620. In this case, you might pay a premium interest rate and find it harder to qualify for a mortgage. 620 will be the absolute minimum credit score for insured mortgages. That means you'll need at least a 620 score to qualify for good rates on mortgages with less than a 20% down payment.

Keep in mind, the exact score needed depends on the type of mortgage you require. For example, mortgages for the self-employed, or for rental properties, often require higher scores.

There are several "Beacon-killers" to be aware of. Two things that hurt your score the most are payments over 30-days late (even on tiny balances) and maxed-out credit cards. If your credit is weak, however, don't despair. There are several ways to re-establish your credit and improve your score.