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.
Credit scores are a 3-digit number between 300-900 that is used by lenders to determine you’re likeliness to repay a loan or bill. Credit scores are calculated based on the information your lenders, collection agencies and other sources report to the credit bureaus. However, in general, there are five main factors that are used to calculate your credit scores, a major one being the credit utilization ratio.
A credit utilization ratio, otherwise known as the debt to credit ratio, represents the amount of revolving credit you’ve used versus the amount you have available to you. Revolving credits including accounts such as your credit cards and lines of credit.
Revolving credits are products that do not have any fixed payments. Credit cards and lines of credit are two types of products that fall under this category. With both products, you’ll have access to a certain credit limit which you can use as much or as little as you need. The funds you use become accessible again as you repay the balance.
Typically, lenders and creditors like to see a credit utilization ratio of 30% or lower. However, keep in mind that “perfect” is subjective and ambiguous when it comes to personal finance and credit scores. Everyone’s personal finance needs are unique, so you should aim to find a credit utilization ratio that suits your financial situation. Also, your credit utilization ratio becomes more important when you’re applying for new loans or credit, it’s not entirely necessary to keep your credit utilization ratio at 30% all the time.
Credit utilization ratios are very simple to calculate as it is merely a percentage calculation, the two steps are discussed below.
To help demonstrate the credit utilization ratio calculation, below is an example.
If you only have one credit card and the balance is $400 and your credit limit is $1,000, you can calculate the ratio by dividing the balance ($400) by the credit limit ($1,000). The ratio you get is 0.4 or 40 percent if you multiply by 100.
Let’s say that you have two credit cards, one has a balance of $800 and a limit of $1,000 and the other has a balance of $600 and a limit of $1,500. To calculate your ratio, follow these steps:
Credit scores are calculated using the information reported to the credit bureaus by your lenders, creditors, collections agencies and other sources. In general, there are 5 main factors used:
As you can see from this list, credit utilization ratios are one of the more important factors when calculating credit scores. However, depending on the credit scoring model used, it may carry more or less weight, which may affect its impact on the credit scores. Broadly speaking, high debt to credit ratios can have a negative impact on your credit scores, while low debt to credit ratios may have a positive impact.
Before making changes to your credit utilization ratio, keep in mind that your credit card information is not updated in real-time on your credit report. Usually, credit card information is updated on your credit report when the respective billing cycle ends. Once the billing cycle ends, your credit issuer will send the ending balance to the credit bureau, at that point, it will be updated on your credit report. This means that you won’t see any changes you make to your credit utilization ratio on your credit report instantaneously.
Bettering your credit utilization ratio means lowering it, you can do so using the tips and tricks below.
By increasing your credit limit, but keeping your spending the same, your credit utilization ratio will become lower. It’s important to note that a credit bureau can penalize you for increasing your limit as it may indicate an urgent need for funds. Although, this is a short-term consequence so long as you continue to manage your credit well moving forward.
The most obvious thing you can do is keep an eye on balances and avoid going over a certain limit. It’s also possible to set up balance alerts with your bank so you’re notified when the balance goes over a certain amount.
Since credit card information is updated on your credit report at the end of a billing cycle, try your best to keep the balance low at the end of a period. This way the balance that shows up on your credit report will be lower, regardless of the activity that went on during the billing cycle.
By paying your credit card twice a month, you will be keeping your balance lower regardless of how much activity you have on your card. This method is one of the easiest ways to keep your credit utilization ratio low.
Credit Utilization Ratio FAQs
What is the difference between debt to credit and debt to income ratios?
Can my debt to credit ratio affect my credit scores?
Does closing a paid-off credit card affect my credit utilization ratio?
Will maxing my credit limit affect my credit scores?
Credit scores are an important part of our financial profile and it can help open doors to different credit products. While your credit utilization ratio is a common factor used to calculate your credit scores, implementing extreme and stringent measures to keep your credit utilization ratio low isn’t necessary at all times. It’s best to find a healthy balance between taking advantage of credit card products and using them responsibly.
Rating of 4/5 based on 9 votes.
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
New Offer! Get up to $2,000 cashback + a $50 bonus on signing up. Conditions apply.
Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.
With KOHO’s prepaid card you can build a better credit score for just $10/month.
All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.
When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.
Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.