If you are interested in getting a loan or a home mortgage, your prospective lenders will ask for your credit score. Unfortunately, it can be challenging to traverse the credit landscape if you don’t know what that is and how to get your hands on it.
Learning about your credit score and the actions you can take to improve it will help you achieve your financial goals; it can even save thousands of dollars by qualifying you for financing and credit cards with the best rewards.
What Is a Credit Score?
A credit score is a three-digit number that informs lending authorities about your ability to repay a loan.
Credit scores are determined by analyzing credit reports. The credit score range in Canada is between 300 and 900.
Scores can have several implications, and they help lending institutions decide the interest rate for different types of loans. For example, when you apply for a fixed-rate mortgage, a higher credit score will tell lending authorities that you are qualified for a better loan with lower interest rates.
You can obtain a free copy of your credit report from either Equifax Canada or TransUnion Canada.
What Does a Credit Score Mean?
In simple terms, your credit score is evidence of your financial history. A higher credit score means that you’re a dependable candidate who can make loan repayments; you essentially have a history of paying off your credit card on time every month. A high score can make the process of applying for an auto loan, personal loan, or credit card a lot easier.
Conversely, if your credit history consists of missed and late payments or bankruptcies, lending authorities will deem you a risk, thus denying approvals or only letting you borrow with higher interest rates.
Now, what is a good credit score?
Though models vary, the general consensus is as follows:
- Below 660 – Poor
- 660 to 724 – Good
- 725 to 759 – Very Good
- 760 and above – Excellent
What Are the Factors That Determine Your Credit Score?
Different pieces of your credit history play a part in calculating your cumulative score. So, let’s take a look at a few factors that are taken into account:
- Payment history: The payment history includes information about how quickly you have returned debts in the past, how many late payments you have made, and the number of times your payments have faltered.
- Amounts owed: This includes the total debt you have relative to your credit limit. If the amount owed is high, and you have a limited budget to make other payments, it would be considered a risk to apply for additional loans. Therefore, your credit score will be reduced.
- Rich credit history: A rich credit history of reliable spending habits can improve your credit score, as there is more data regarding your financial behavior.
- New credit: If you have several new credit accounts, you would be considered a risky candidate; too many credit applications reflect a sense of urgency and financial turmoil.
- Credit mix: Credit mixes are the different types of accounts that make up your credit report. More accounts positively influence the score, as it means that you have more experience in handling a mix of credit.
What Can You Do to Build Your Credit Score?
If you’re wondering how to improve your credit score, keep the following tips in mind:
- Try not to use more than 30% of your available credit
- Make timely payments
- Keep your older accounts open to show a more extended credit history
- Use credit wisely; never go over your limit
Contact a Mortgage Broker Today!
If you’re looking to buy property and need assistance finding the right lender, reach out to Axiom Mortgage Solutions. For over forty years we’ve been catering to customers in Essex County, Ontario, and will be more than glad to take a look at your credit score and guide you accordingly.
Feel free to call us at (519) 735‑1440 or fill out our contact form online.