FACTORS THAT DETERMINE YOUR CREDIT SCORE

So what actually makes up your credit score? There are five categories that factor into the data that makes up your credit score. This doesn’t include your age, where you live, personal income, bank account balances, employment status etc.

The five factors below are the only ones in Canada (and the US) that impact your score. Payment History

Amount Owing & Credit Utilization

Credit History Age

Recent Credit Application

Credit Types Used

Below is a quick breakdown of each and how they impact your credit score.

Payment History (35%)

The largest determinant of your credit score is your payment history to lenders and creditors. Ultimately this showcases whether you are paying your bills, loans and money owed on time.

To improve or maintain a high credit score always pay the full installment (or amount owing) on time.

Amount Owing & Credit Utilization (30%)

The second factor of your credit score comes from the total debt owing and your credit utilization. If you have $25,000 in total available credit and your amount owing always falls in the $20,000 range, you have a high credit utilization at 80%. A high utilization will negatively impact your credit score.

A rough guideline is to try and maintain lower than a 30% utilization. To improve or maintain a high credit score, try to manage that utilization rate and pay down your balances.

Credit History Age (15%)

The third factor determining your credit score is related to the age of your credit accounts. This includes both the oldest credit account you have and the age of all your credit accounts. In the eyes of the bureaus and lenders, having “older” credit is better as it showcases a longstanding ability and experience of managing credit.

To improve or maintain a high credit score, it’s typically not a good idea to open several new accounts in a short time frame.

Recent Credit Applications (10%)

When lenders (like banks and credit card companies) submit an application you’ve submitted for some form of credit, generally that requires a “hard pull” on your credit report. They’re sourcing your credit report to determine whether they want to lend you credit. Several inquiries in a short time frame can hurt your credit score.

Good news is when you check your own credit report through Borrowell, it’s technically a “soft pull” and won’t affect your credit score.

Credit Types Used (10%)

The final factor determining your credit score is the type of credit accounts you have. There are two basic types of accounts: revolving accounts and installment loans. Within those accounts there are different assets, like cars, homes, credit cards, student loans, personal loans, etc.

The more diverse your credit accounts are, the better it can be for your credit score. It shows an ability to manage a wide-range of credit types. However, this only represents 10% of your credit score so don’t stress about not having different assets represented.