Several factors influence your credit score and each has a different impact on your overall assessment:
35% Payment History: late payments, bankruptcies, collections and judgments
30% Current debts
15% Length of credit history and how long accounts have been established
10% Types of credit, such as credit cards and bank loans
New applications for credit
Now that we understand the 5 categories that make up a credit score, it is important to know how what factors influence your credit score and a lender’s decision. Most companies that grant credit for credit cards, loans and financing report to credit bureaus every month. Other companies also report outstanding amounts to credit bureaus. Here is a summary of factors:
It is important to make your payments on time. Never miss a payment – even if it is for a small amount. Large or small, each missed payment counts against you.
This refers to the ratio of credit you have used compared to your total credit available. Ideally everyone should pay their credit card balances completely each month. When that isn’t possible, be sure to make your payments on a timely basis and keep your balances as low as possible. When your balances get too high, a consolidation loan can help you preserve your score and minimize interest too. Even one credit card with a high percentage of debt to credit available will negatively impact your credit score.
Too Many Accounts
Most lenders look for at least 2 accounts per borrower but too many accounts will actually have a negative impact on your credit score.
Incorrect information can appear – especially for people with common names. See below on how to detect and correct errors that may appear.
New accounts can lower a credit score. Avoid applying for or accepting new credit cards that you don't really need. Not only does new credit lower your score, the lender will likely do a credit inquiry too!
It is very important for everyone to establish their credit. Young people that are starting out, newcomers to Canada and others that are starting again need to demonstrate two years of credit with at least two lenders.
Number of Inquiries
Multiple inquiries have a negative effect as this suggests that a person is seeking credit from numerous sources.
Number of Trade Lines Reporting
Everyone should have at least 2 trade lines (lenders) reporting on their credit report for at least two years.
Fluctuating Credit Limits by Lenders
Sometimes credit card companies use credit limits that vary. If a limit remains unchanged and a higher balance is reported, it may indicate that the credit limit was exceeded and result in a lower credit score.
An unpaid account - even a small balance will result in a delinquency. Always make at least your minimum payments and make them on time. Once a payment or two have been missed, even a large payment won't erase the delinquent payment(s). Small oversights can eventually turn into serious delinquencies!
Outstanding Judgments & Collections
Never leave judgments and collections outstanding. If a dispute is being resolved or contested, it is a good idea to include a note of explanation on your credit report.
Current or Previous Bankruptcies, Consumer Proposals & Credit Counselling
Failing to Re-establish Credit After Delinquencies, Bankruptcy, Consumer Proposal or Credit Counselling
Managing your Credit and Credit Score
Review your own report & score at least once a year.
With Equifax, costs are:
Credit report only $15.50
Credit report & score $23.95
Credit Watch $14.95/month – provides e-mail alerts of changes, quarterly updates of report & score
Consider identity theft insurance
Pay off debts every month
Live within your means
Pay debts and/or minimum balances on time
Consolidation loan – HELOC help to reduce your debt utilization
Distribute debt among cards to keep debt to credit limit ratios in check
Keep new credit to a minimum and only as needed
Don’t overlook small balances
Time – it takes time to correct a problem with your credit report
Negotiate extensions with creditors – including credit reporting
Add an explanation for a problem on your report – disputed, job loss, illness, etc.
Dispute errors by contacting Equifax & downloading and completing Consumer Credit Report Update Form:
Equifax Canada Inc.
Consumer Relations Department
Box 190 Jean Talon Station
By fax: (514) 355-8502
For an informed, intelligent choice...
co·gent [ kṓjənt ]rationally persuasive: forceful and convincing to the intellect and reason. Compelling, conclusive, effective, satisfying.