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19 Nov

What is Credit score and how to maintain Healthy Rating.

General

Posted by: Piyush Vora

- What is credit score
Credit score is the 3 digit number, typically it can range between 350 to 850. It is designed to assess the Credit worthiness of the person. Your credit score is derived by using many factors like the payment history, amount of debt you have, the length of credit history. Higher the score means more credit worthiness showed by the person in the past and low score would mean the person have showed some challenging behaviour in the past. More the score more confident the creditors will be for lending money.
-Who maintains and updates your credit score?
Mainly there are 2 agencies who maintains the score for Canadian and they are Transunion (https://transunion.ca) and Equifax (https://www.equifax.com/personal/). Most lenders will follow either of the Credit report maintained by them.
-Why is credit score so important?
It is very important to know why to strive for the better credit score. Generally people with higher credit score tend to get favourable credit terms, better rates and faster approvals which can translate to lower payments and less interest during the life of the account. It is very important to know every person’s financial and credit situations will be different and lenders will have different criteria.

It is important to know credit scores may vary from one to the other Credit agencies, this is because different agencies uses different model of scoring.

- Factors effecting the score
There are few factors effecting the credit score, but the major 5 factors will be as follows
1. Payment history - Do you pay your bills on time? Your credit score may take into account any missed or late payments, how long they went unpaid, and how often.
2. Amount owed - This includes totals you owe to all creditors, how much you owe on particular types of accounts, and how much available credit you have used.
3. Types of credit - Generally speaking, the more types of accounts you have (credit cards, retail accounts, mortgage loans, installment loans), as well as the total number of accounts you have, influences your credit score.
4. New loans - Have you shopped for or received new credit recently? Applying for credit with different lenders within a short period of time may lower your score, especially if you have a relatively short credit history to begin with.
5. Length of credit history - The age of your oldest credit account, the age of your newest account, and the average age of all your accounts may each play a role in the calculation of your score.
- How to boost credit score
1. Pay bills on time – Paying you bills on time helps boost your scoring. Even if you cannot make the full payment, paying minimum amount will help as well.
2. Watch your Credit card balances – Do not use too much of the available credit. Ideal would be to use 35% to 40% of the Balance.
3. Do not open more Credit cards account – Opening of too many credit card account will reflect as irresponsible behaviour to the lender
4. Updating your address when you move – When you move, make sure you update your address with Bank and Card companies. So your mail comes to the right address and does not go unpaid.
5. Check your accounts online – Don’t wait for the bill to come, you can make the payment before the amount is due.
6. Pay off Delinquent accounts – If for any reason accounts becomes delinquent pay it off right away, although it will not remove missed payments but will help improve the ratings.
7. Removing inaccurate information – Sometimes your credit report might have a loan not reported correctly, or closed account might show outstanding. The best practise it check your report once in 6 months to stay up to date.

- Is it advisable to check credit report frequently
As we spoke about this in the above point 7, one can always check the credit report once in 6 months to make sure the report is accurate and if you see any wrong trade reported you can call the credit agency and take care of it. If you want to check your credit report below are the process with both the credit agencies.
1. Transunion – You can call them on tollfree number 1-800-508-2597 and follow the prompts on IVR to get your free credit report

2. Equifax – You can call them on tollfree number 1-888-548-7878 and follow the prompts on IVR and get your free credit report.

(Please note the credit report and credit score is different. Credit report if free will not show your beacon score whereas credit report is paid and shows your beacon score.

If you have any question on above or any other Mortgage questions please call me.