For the most part you have heard how important is your credit score and how this 3 digits are arguably one of the most important numbers in your adult life, well in Canada two business bureaus Equifax and Transunion rank your credit score from 300 to 900, in plain simple the more you have the better it is. But , what does it mean? and how could i affect it or improve it?, well it's a matter of understanding the gears and motions.
Both companies calculate what is called the FICO score with a secret mathematical equation, you won't have access to the equation itself, but FICO have shared what are the factors and they have specifically weighted them , so you get a broader idea of the impact. Have in mind that each person has different score and the way they have managed their finances, have a particular way to describe their patterns.
1. Payment History
How often you pay your bills late? check out that this weights 35% of the share, this one has greater impact than any other. Have in mind serious payment issues, like charge-offs, collections, bankruptcy, repossession, tax liens can devastate your credit score. There is no way around this one, but to make your payments on time.
2. Amounts Owed
Your debts sure matters and with a heavy 30% of the share. how much do you owe based on your credit limit ?( "credit utilization"), you shouldn't exceed your amounts more than 75% , if you want to have a positive credit score.
3. Credit History Age
How long have you had the credit open? how often do you use this credit?, it doesn't help to have to much debt in credit and the same happens if you don't use it at all. There are 2 types of credit : Revolving accounts and installment loans, having these two types in your accounts, improves your score since that determines how well you are capable of handling your expenses and credits, but NOT having either will not devastate your score as it weights only 10% of the share, but still , every bit counts.
4. New Credit
How often have you gone to the bank and requested a credit card?, if you are looking to get a credit, don't go around filling out several forms in different financial institutions, since everytime , they will submit a credit inquiry to the bureau and having several of these in a short period of time, will decrease your score, so keep your applications to the minimum to preserve a nice score.
The good news is that only the inquiries done within the last 12 months will affect the score, but it will take up to 24 months to have the record of any inquiry erased. Note that checking your own credit will result in a " SOFT INQUIRY " which doesn't affect your score.
5. Types of credit used
Where and what types of credits are you getting? having several credit cards, car loans, personal line of credits, etc. affect in a 10% your score, although is not a devastating amount, should be considered, remember that having more, doesn't mean you will improve the score.
Having the best credit score is a balance of having as much as you need , but don't exceeding the standards stablished by the bureau. In a nutshell keep your credit limit below the 75% of your approved amounts, if possible try to pay the loan in full, but if you can't then make at least the minimun payment on time, remember to be on top of your bills and use your tools available such as remainders on your phone/tablet or computer, set the recurrence as needed and release your brain from having to think when is the next due date.
As always, if you find the article useful and you would like to share your thoughts, please look for the comments section and thank you for the time of reading the article. if you are thinking of investing in real estate, don't hesitate to contact me, just fill out the contact me section and will get back to you asap. have a wonderful rest of your day!.
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