This is a three digit number that provides a snapshot of your credit history. The information comes from your credit report and it demonstrates how well you manage credit and what kind of a risk you are if you’re looking to borrow money.
Don’t underestimate the importance of this number. Your credit score impacts many different aspects of your financial life. It can be your gateway for everything from renting an apartment to getting a new credit card and qualifying for a home or car loan.
Understanding the factors that go into putting a credit score together is important. That way you can maintain and or improve it to better your financial outlook. That’s true whether you live in Ajax, Toronto, Oshawa, or Pickering.
What Are The Different Factors That Impact a Credit Score?
There are several different factors that come together and wind up being this three digit number. The credit bureaus synthesize these to evaluate how creditworthy applicants are. These factors include:
- Payments. One of the big factors that both lenders and creditors look for is on time bill payments. This is a strong indicator used in many different credit scoring models. It’s a good indicator of how likely you are to meet your obligations if approved for a loan.
- Different Types of Credit. Different types of credit score factored into credit scoring models. These can include store accounts, mortgages, credit cards and installment loans. Lenders generally favor a balance. An auto loan, mortgage and several credit cards reflect better than an applicant who only has the credit cards to show, assuming all payments are made on time.
- Recent Credit Inquiries: Receiving your own credit reports will not affect your credit score. These are called soft inquiries. However, a hard inquiry will affect the number. Those happen when a company makes a request to look at your credit as part of an application process. A series of hard queries can tell a lender that you are shopping for new credit. It can be impactful when they are assessing your creditworthiness. It all depends on the credit scoring model that’s being used.
- Length of Credit History. Lenders look at a few factors here. Your credit score can be impacted by the accounts that have been opened the longest as well as the average age of all the ones that are open.
There’s another important factor that determines your credit score. Credit utilization is a ratio that balances the amount of credit people use against the amount available to them.
How Credit Utilization Affects Your Credit Score
Credit utilization is generally shown as a percentage.It’s the part of your credit score that tells lenders how you are managing your current credit debt. The formula to come up with credit utilization is simple. The amount of credit you’re using is simply divided by the total that’s available to you.
There’s a good example of exactly how that formula works here.
Don’t underestimate the importance of your credit utilization percentage. In many credit scoring models, it’s the second most important factor right behind payment history.
Another factor that can affect your credit score needs to be highlighted.
Late Payments and Your Credit Score
There’s good news and bad news about this. First off, the good news is late payments don’t usually show up on credit reports for up to 30 days after you miss one. The bad news is there’s always a consequence. Even one missed payment or late payment can impact credit reports and your score.
Remember, you have up to 30 days to make up a payment before it starts to affect your numbers. Making sure that your credit scores in reasonable shape is within your grasp. You can start with a quick check to make sure it’s accurate.
Checking Your Credit Score For Mistakes
You can check your credit score through the different bureaus like Equifax and Trans Union. The Canadian government suggests that you use this formula. You can get a credit report from one bureau and then wait around six months and get it from another. It’s a good method to detect any issues.
Any errors in your report can give potential lenders the wrong impression. You can be turned down for everything from mortgage loans to credit cards and be refused a rental property or apartment.
Some mistakes you’ll need to watch for include mistakes made in your personal information like an incorrect date of birth. Errors in loan accounts and on credit card payments need to be caught too. Watch for signs of identity theft like accounts listed that you have never opened.
A bad credit score can always be improved. However, it takes a little time.
How Long Does It Take To Improve Your Credit Score?
Generally, repairing your credit score depends on a few different things like the steps you are taking to rebuild it and what damaged it in the first place. Equifax reports you can see a change in 30 to 45 days.
Paying your bills on time consistently is one way to start repairing this number. You might not be able to pay the balance in full every month, but even the minimum is a good start. Diversifying your credit mix is also a good plan. Try to have a good mix of installment and revolving credit. Another good idea is what’s called an open account where the balance is due and must be paid in full every month.
Keeping your credit score in good condition is important. Consider financial institutions like credit unions and banks as well as credit card companies and even mobile phone outfits can access the information.
Mortgage Broker Store Inc focuses on supplying mortgage products that don’t meet traditional bank requirements. Our team consists of licensed mortgage agents and brokers and direct private lenders.
Email Ron@mortgagebrokerstore.com or call 416-499-2122 for free advice.
