What Affects My Credit Score?

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Published on: March 29, 2017 8:57 am

Whatever the reason you’ve been looking for a loan you’ve probably found yourself asking one simple question: “What affects my credit score?”.

There are plenty of factors that go into that magic number, but they’re not always easy to discern. Here’s a helpful guide to help you get to the bottom of your important financial score to help get yourself better loans:

What is a Credit Score

There are two national credit bureaus in Canada: TransUnion Canada and Equifax Canada. Each of these companies collects information about the way you use credit, which usually includes things like fixed loans, i.e. car notes, revolving credit, and credit cards.

Your credit score is a number calculated based on a series of factors that ultimately reflect how responsibly you use your available credit. In Canada, credit scores range from 300 (just starting out) up to 900 points (a perfect score). Your number will likely reside somewhere in the middle. Generally speaking, creditors begin looking at you favorably for a loan when you reach a credit score around 650. The further below 650 your credit score is, the more difficult it will be to obtain a loan.

Factors that Impact a Credit Score

A number of elements are factored into the calculation that ultimately creates your credit score. Here are a few of the major players:

  • Payment History.It’s important to pay your bills on time and in full, which can mean simply fulfilling your minimum required payment. Late payments will reflect poorly on your credit report, and future creditors will take this history into account when considering future applications.
  • If you got to the point where you were unable or unwilling to pay your bills, you probably have delinquencies on your credit report. Delinquencies come in the form of charge-offs, bankruptcies, and accounts that get sent to collections. They can do a lot of damage to your credit score.
  • Balance-to-Limit Ratio.Creditors look closely at how you use the credit that’s given to you. If you have a $10,000 credit limit, don’t use all $10,000. Rather, responsible credit use typically involves having more available credit than you use.
  • Recent Inquiries.Before you begin applying for every credit card on the market, even if you have no intention of using them, be mindful that every application hits your credit score. Only apply for credit you actually need to avoid excessive point deductions
  • Length of the Loan.One common mistake people make when they’re trying to clean up their credit is closing their old accounts. In reality, long, established relationships with creditors can help boost your score.

A Good Credit History is Built Over Time

If you have found yourself asking, “what affects my credit score” you’re off to a good start! Recognizing the importance of having a great score is the first step toward building an excellent credit history. Now that you’re armed with more information, it’s time to start accumulating a fortress of stellar credit building blocks! Here are 5 tips to improve your credit score help you get started.