Good credit score is important if you plan to borrow money from bank. It means you will qualify for lower interest rates on loans and have access to a variety of credit offers.
Payment History– 35%
Payment history accounts for about 35% of your credit score (may vary depending on the scoring agency). A person with a long history of never missing a payment is potentially safe person to lend money.
Unfortunately, if you have negative marks on your credit score; three factors will determine the size of the deduction to your credit score:
1. Time Since The Event – If you have missed a payment a long time back and/but have been regular in making payments after that, it will not affect your score very much. But, if the payment was missed recently, it will cost more against your credit scoring.
2. Number of Missed Payments – Is very important. If a payment is missed once, it won’t affect the credit score much. But be watchful. If you are having a history of missed payments, you will be considered to be risky lender and this will also be reflected in a lower debt score.
3. Severity of the event – How severe the event is will also affect your credit scoring. Missing a payment is not very serious. But if outstanding debts have reached to a point where collection agencies have been involved, then this will certainly go against you.
How Much You Currently Owe – 30%
Credit score is like a worry index for lenders. Think of this aspect of credit score as a percentage. The amount you owe on all possible credit sources like line of credit, credit cards, store cards, home loans, auto loans, your current mortgage just to mention a few divided by the total of all credit available to you.
How Long You Have Had Credit – 15%
Timely payments in whatever situation play a very important role in determining credit rating. If you have not missed a payment even when they have lost your job or been ill for extended periods you have a good chance of positive rating.
Your Last Application for Credit – 10%
Your last credit application date accounts for about 10% of your total score. Recent credit applications can indicate a “need” for money which can be a negative factor on your credit score. In fact, even having many lenders check your credit score can have a negative impact on your credit score, so make sure you don’t authorize lenders or banks to “pull” your credit score unless you are in fact, seriously shopping for a loan or other credit instrument.
The Types of Credit You Are Using – 10%
There are two major types of credit: revolving and instalment.
Instalment loans include loans on car loans and mortgage. Revolving include credit cards and the benefit of using them. You still retain the credit to use it again. And mortgages are seen has higher quality than revolving credit, simply because they are more difficult to obtain (the recent sub-prime loans excluded).
The type of credit you are using represents about 10% of your score. People who have a blend of credit from various sources get a higher score. This is seen as a reflection of trust, due to each credit card or loan being seen as an endorsement from a different company.
Where do you stand –
Credit Score / Quality
300 to 559 Poor
560 to 659 Fair
660 to 724 Good
725 to 759 Very Good
760+ Excellent
Ordering your own credit score report from one of the bureaus should not count as a negative on your actual credit score.
Following are two resources you can use to check your credit score/rating:
Equifax Canada
Tel: 1-800-465-7166
Fax: 514-355-8502 www.equifax.ca
TransUnion Canada
Tel: 1-866-525-0262 (except in Quebec) www.transunion.ca