Loans Canada Launches Free Credit Score Portal And Is Recognized As One Of Canada’s Top Growing Companies
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
Building credit is hard, but so is maintaining it. This is why it’s so important to understand not only how credit scores are calculated but also the financial habits that can negatively impact your credit.
Credit scores are 3-digit numbers between 300 and 900 that are calculated based on the information in your credit report. It represents your likelihood to repay a bill on time. Credit scores above 660 are considered good to excellent while credit scores below 560 are considered poor.
Your credit scores can be impacted by two major factors: the information reported to the credit bureaus and the credit scoring model used to calculate your credit scores.
Information Reported To The Credit Bureaus – Not all lenders and creditors report your credit information to both credit bureaus. Some only report to one, while others report to none. The credit reporting discrepancy can therefore affect the way your credit scores are calculated.
Credit Scoring Model – Similarly, there are many different credit scoring models. Some models place more emphasis on your payment history while others may put more emphasis on your debt-to-credit ratio. Others may even calculate your credit score without including certain tradelines in your credit report like cell phone bills.
That said, there are five common factors that are typically considered in the calculation of credit scores. This includes payment history, credit utilization, credit length, public records, and new credit inquiries.
Payment history generally accounts for about 35% of how a credit score is calculated. By consistently paying off your credit cards and loans in full and on time, it can help build a positive payment history.
Your debt-to-credit ratio is determined by how much of your available credit limit you use. For example, if you have a credit card with a $1000 limit and you charge $500 worth of purchases to it, your debt-to-credit ratio (or credit utilization) will be 50%. Your credit utilization usually counts for 30% of the calculation of a credit score.
Credit history (or credit length) refers to how long you’ve been using credit. It typically counts for 15% of a credit score. The longer the credit history, the more likely it may positively affect your credit scores.
It’s always a good idea to keep your older credit accounts open and active. If you want to reduce the number of accounts you have to manage, it might be better to close the newest ones if possible.
Check out how a decrease in credit card credit limits can impact credit scores.
Public records usually account for approximately 10% of your credit score calculations. Public records include bankruptcies, liens against properties, lawsuits, debt collections and other derogatory remarks.
Whenever you apply for more credit, lenders usually check credit information by doing what’s called a “hard inquiry”. These can lower your credit scores. Credit inquiries count for 10% of a credit score.
We recommend you try not to apply for a lot of new credit at once to avoid too many hard inquiries on your credit report.
Check out the 7 entities who can check credit.
Cell phone accounts, utility bills and other service accounts may or may not affect your credit scores. Generally, service accounts only end up on your credit report if you missed a payment or if your account was sold to a collection agency. However, more cell phone providers have been starting to report both on-time and missed payments. Meaning cell phone bills can affect your credit scores both positively and negatively, however, it ultimately depends on the credit scoring model used.
It might be interesting to note that even though reduced income can reduce an applicant’s chances of securing a loan, it has no impact on their credit scores. This is because reduced income affects the debt-to-income ratio, which is one of the most important factors that lenders consider. However, your income may have an indirect impact on your credit as a reduced income can affect your ability to make payments (which can affect your payment history).
Errors in your credit report may also have an impact on your credit scores. According to a CBC article, almost 20% of people find inaccuracies in their credit reports. This can often lead to rejections for different financial services. Some common errors to look out for include:
Building and maintaining credit is important. A poor credit history can limit one to lenders that only offer financing with high costs of borrowing. Maintaining good credit history can help increase access to more affordable credit. As such, understanding what impacts your credit is key to building and maintaining good credit.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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