What is a credit score?
A credit score is a numerical representation of a person’s credit files and creditworthiness. What this means is very simple, it means that credit card scores are what determines the financial eligibility of a person. It’s the determinant factor of how far your lender can go for you when it comes to borrowing money.
Lenders- financial institutions, banks, creditors use credit scores to evaluate and determine the posing risk of lending to an individual and palliate losses, in a situation whereby, the borrower is finding it difficult to pay back or has bad debts.
In Canada, with FICO system, the most popular system of evaluating credit scores, scores ranging from 300 up to 900 points, which is the best score. According to TransUnion, 650 is the average number, while any score above 650 will likely qualify you for a standard loan. Any score under 650 is likely to bring difficulties in receiving new credit.
What are the necessary details needed to calculate credit score?
Your credit scores are generally based on how often you make payments and how promptly the payment are made, how many accounts you have in good standing. It is not determined by your gender, race, origin, religion and marital status. These are personal information that can in no way factor in your credit score. The paramount details that determine your credit score are as follow:
Payment history: How often you pay and how promptly you pay is a key factor that determine whether or not you will have a good credit score.
Credit duration: The duration of the credit you have had in the past also determines whether or not your credit score will be low or high.
Type of credit: The type of credit you have will also be a determinant of your credit score. Credit cards, auto loans, student loans, mortgage loans are different loans that won’t all get you the same credit card score.
Credit limits: Your credit limit and how much of the limits you are using can be a boost to your credit score.
Debt history: The amount of debt you have incurred can determine whether or not you will have a good credit score. If you have been accumulating a lot of debts, it might not look good on your credit card.
Card report inquiries: If the explanatory notations on your credit report reads, ‘soft inquiry’, which typically does not have any effect on your credit score, worry less. Nevertheless,if it states, “hard inquiry, it will have a negative effect on your score, but only dropping a few points off your credit score card.
How can I know my credit score?
To check your credit score is pretty easy and simple than you think. In Canada, it’s much more easier. You can request for your credit score file by mail and get it without paying a dime. It’s absolutely free. There are two national credit score bureau in Canada: TransUnion Canada and Equifax Canada. You can check with both bureaus. Details on how to get a copy of your credit score will be explained to you.