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We ALL have them, well, unless you’re 13!  A CREDIT SCORE.   Some people love them, some fear them. Sealed  Being an adult in today’s society makes them necessary for almost any large purchase.  So, while your credit score may seem to be a mystery, I’m here to show you that they are actually determined according to a set of rigid mathematical formulas. 

 

It is very important to keep your credit score as high as possible. When it comes to obtaining a mortgage some lenders will not even consider approving files when the credit score becomes too low.   They will also start charging higher rates when your credit score is low.    According to Equifax Canada, a “good” credit score is:

 

 

Many factors contribute to your credit score.   Every debt, credit card and late payment is weighed differently.  In general, Equifax Canada weighs its components something like this:

 

Type of Credit – 10%

If you have a mix of different types of credit, including revolving credit, such as credit cards and lines of credit, and installment loans that you pay  monthly, such as student loans, the better your credit picture will be.

 

Payment History – 35%

This typically involves recent payments that are more than 30 days late, as well as any collections, judgements or bankruptcies.

 

Outstanding Debt – 35%

This includes the number of creditors owed, credit card balances and allocated limits.  A maxed out credit card will have a deeper impact on your credit score than a card with a $200 balance.

 

Recent Inquiries – 10%

Every time you apply for a loan or credit card lenders have to access your credit report to see your score and assess your credit worthiness.  Too many of these in a 12 month period, say, if you were shopping around for a mortgage, can reduce your rating.

 

Credit Account History – 15%

This refers to the length of time your accounts have been open.  If you’ve been using a credit card for 10 years and have been paying it off on a regular basis, this actually has a positive effect on your overall credit rating.

 

Till next time ...

 

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