Introduction to Credit scores

Credit scores are rating of how risky is to lend money to you. Ranging from 300-900 points, Higher the credit score, more trustworthy you are.

In Canada, credit scores are maintained by two companies. Transunion and Equifax.

As per Transunion,
Your payment history makes up 35% of your score, while the amount you owe lenders represents 30%. The length of your credit history contributes 15%, and the types of credit accounts you maintain comprise 10%. Finally, new credit accounts are responsible for 10%.

300-599 - Very Poor
600-699 - Poor
700-749 - Fair
750-800 - Good
800-900 - Very Good

If your score if very good, you will get approved for most of the applications and you will get low interest rate for your loans.

To get better score you should have

1) Longer credit history - This basically tell bank that you are paying all your credit card, phone, loan interest on time for so many years.

2) Credit utilization: This is ratio of money you owe banks and total amount of credit you have. Usually utilization of less than 30% is recommended. So if total credit limit of all your credit cards and line of credit is $10K, Do not go beyond $3K.

3) Credit Mix: If you have variety of loans and paying all bills on time. This increases your score. Credit cards, Line of credit, Fixed term loans, Auto loan, Home mortgage are all different types of credits.

4) Inquiries: If you applying for multiple credit cards and loans in short duration, This might impact your credit score. As creditor might think you have bad financial situation.

5) Missed payments: Never miss any of your bills. It doesn't matter if you missed bill of $4 or $400, it does the same damage. Worse is when you leave it until it goes to collection agency. Set up auto debit for all your credit cards and bills to prevent this. I know people who credit score went down by 200 points just because of one missed payment.



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