What is a credit score?
A credit score is the number that banks, mortgage providers, car dealerships, and credit card companies use to decide how likely you are to pay back their money. In Canada, there are two main credit bureaus, Equifax and TransUnion, a which track your financial history on behalf of lenders.
The lower your score, the riskier you are – and the higher your interest rate. If your score is low enough, it is tough to get a loan, lease, or mortgage. Utility and phone companies base the size of your deposit on your credit score. That is why it is important to manage your credit score so that when you need credit, you can get the best interest rate.
Tips to improve your credit score
The following factors create your credit score:
* Payment history
* Current debts
* How long your bank, credit, and utility accounts have existed
* Type of credit
* Credit enquiries
Your payment history is worth 35% of your credit score. It’s better to make the allowable minimum payment on all your bills instead of making a big payment on one and letting the rest slide for a month or two. The companies you owe money to report your late payment to the credit bureaus, credit score gets worse, and you face higher interest rates next time you apply for credit. Incidentally, the small print often states that missing a payment automatically allows a lender to charge higher interest.
About 10% of your credit score is based on the number of credit enquires made about you. If, for example, you are shopping for a mortgage, and go to four or five banks, each bank will request your credit history. And each time they do so, your score will get lower. Keep your credit score higher by using a mortgage broker – they make only one credit search even though they may look at dozens of mortgage products till they find best deal for you.
The good news is, that with a little attention, it is easy to control and build a good credit score. Simply pay all your bills before the due date and restrain the urge to apply for the many credit and store cards that are constantly thrust at you.
For Resource section: Canada’s Office of Consumer Affairs
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