Many Canadians have heard the term credit score. However few know how it is used, even fewer understand how it is calculated. Your score provides lenders with a snapshot of your financial health and can range from 300-900. The higher your score the more likely you are to qualify with better rates and terms. First of all let’s understand how the score is calculated.
How a credit score calculated?
Calculated using information from your previous and current lending products. 35% payment history, 30% Capacity or utilization, 15% length of credit, 10% accumulation of debt (12-18 months), 10% the types of credit you have. So how do you better your credit score?
Bettering my credit score!
Improving your credit score can take 6-18 months depending on the situation. Steps to help improve your score can include paying down credit cards and lines of credit to less than 75% of available credit. Make all payments on time, even if it is only the minimum. Ensure the information on your credit report is correct, you can request a free report from Equifax or TransUnion through their websites. Be mindful of any new accounts you open, inquires against your credit may have a negative impact if there are numerous inquires. If you are shopping for credit do so in a relatively short period of time. What else negatively impacts credit scores?
Hurting my credit score!?
There are a few things that you can do that will negatively impact your credit score. Consistently being at or over the limit of your credit cards or line of credits. Missed payments, a single missed payment affect your score for 24 months. Closing credit cards, this seems counter intuitive however closing a credit card reduces capacity. Inquires, too many in a short time may indicate financial troubles. Type of credit, having more revolving debt than installment loans. What doesn’t affect my score? Income, debt servicing, employment or address.
Recent changes to mortgage qualifying laws are making it important to have a strong credit score. If you are struggling with your credit score, or want to review what I can do to assist you contact me here.
Thank you,
Ryan Dykstra