A number of specific factors go into determining a credit score. Scores change frequently as these factors are based on what someone does or doesn’t do with the credit they already have available. Here is a little insight into what goes into a credit score:
Payment History – 35%
This is the most important factor on your credit score as creditors want to know if you have bad habits when it comes to paying loans. Your payment history looks at late payments and severity of delinquencies. Your score also reflects how recent any late payments or collection activities are. The older the information gets, the less it will impact your score.
Utilization of your Credit – 30%
This is basically how much of your credit you have used. This way, the lender can determine if you can manage anymore payments with your current budget.
Length of Credit History – 15%
The only way to keep a credit report active, is to use credit, at least very minimally, on an ongoing basis as most information is removed after six to seven years. Lenders need a clear picture as to how responsible you are with credit. That’s why it’s important to have a long credit history. Lenders will be more willing to help you out if they can get an idea of your credit history over a long period of time.
Background Checks – 10%
The final component is the history of background checks on your credit. Frequently applying for new credit can signal financial difficulty and does not reflect favourably on someone’s credit score. The theory is that the more someone applies for more credit, the harder it becomes for them to keep up with all of their payments. Therefore, people who seek credit a lot are considered higher risk.
Type of Credit – 10%
Different types of credit paint a picture as to how you handle your money overall. For example, if you have a consolidation loans, it likely mean that you’ve had difficulty paying your debts in the past.
If you are in debt and have concerns regarding your credit score, contact one of our SW Ontario offices. We are here to help you get a fresh start.
