My credit score: I want to understand more about it!

Have you found yourself asking "I want to know more about my credit score" but you're not sure where to start! You've come to the right place.

Your credit score is a number between 300 and 900 used to represent everything on your credit report. Your score is created by a computer program that reviews what is on your report and converts all that information into a score. You can find your score here for free!

So what exactly is used to determine that score?

FACT: Payment history makes up 35% of my credit score

Payments should be on time and in full. Anything other than this will negatively affect your score. *Fun Fact* - Bill payments and parking tickets don’t help your credit score, but if they go to collections they will hurt your score.

FACT: Credit utilization makes up 30% of my credit score

Credit usage percentage is the total amount of credit you have to your name versus how much of it you have used. For example, if you have a credit card with a $10,000 limit and a $7,500 balance, you have 75% credit usage.

Tip: For the best impact on your score, bring your credit usage below 30-35%.

Did you know...Closing credit accounts can increase credit usage percentage without you spending a penny! For example, if you have 2 credit cards, each with a $5,000 limit, and you have a balance of $2,500 on one, your credit usage percentage is 25%. If you close the account that is not in use, your credit usage percentage instantly shoots up to 50%!

Also, work towards reducing your DTI – debt-to-income ratio. Your debt-to-income ratio is the amount in debt payments you must make each month versus the amount of money you make. For example, if your monthly income is $3000, and your minimum payments on your debts are $1500 every month, you have a debt-to-income ratio of 50%.What is a good debt-to-income  ratio?

• 36% or less – Good
• 37% - 42% - Manageable. This is where a mortgage lender will look for your debt-to-income ratio to be at.
• 43% - 49% - Cause for concern
• 50% or higher - Dangerous. If your debt to income is on the high side, pay down a little of your debt before you apply for a mortgage.

FACT: Length of credit makes up 15% of my credit score

Credit is like a fine wine – the older the better. If you’ve been making steady payments (on-time and in-full) towards a loan for several years, it indicates that you are a responsible borrower, and your score will reflect that. It’s a good reason why you should start building credit as soon as possible, even if you’re going through a bankruptcy or consumer proposal.

FACT: Different types of credit makes up 10% of my credit score

Believe it or not 7 credit cards is not the best way to build credit! Credit cards are revolving credit. You want a revolving trade line and an installment line, such as a loan with a fixed repayment amount each month – this will have the biggest impact on your score.

FACT: Credit inquiries make up 10% of my credit score

Every time someone does a ‘hard check’ on your credit, your score takes a hit as it can look like you’re desperate to find a source of credit. Hard credit inquiries should be limited, especially if you are declined after the first one. Hard credit inquiries include:

• Cash loans
• Credit cards
• Cell phones
• Electricity bills
• Car loan

Now you know what exactly makes up your credit score, you can focus on the area where you are lacking. Need an installment or revolving type of credit to add to your mix? Check out our programs!