Sometimes, you are really clueless about how the figures on your credit report came about. You don’t know how come you ended up with such points and everything appears to be magical and quite challenging. Why not? You are the one feeling the full weight of any miscalculation of those figures. The great thing is, you can calculate your credit score yourself. Calculating credit score points isn’t exclusively reserved to credit bureaus and financial gurus, you can do it.
How do I calculate my credit score?
Credit scoring bureaus use an algorithm that produces a three digit credit score. A lot of people don’t actually know what went down in the machine. Credit score bureaus like Equifax Canada and TransUnion Canada, use FICO,(Fair Isaac Corporation) , a credit scoring model to calculate credit score for Canadians. They don’t share the exact thing that went down in the machine, but to an extent, they give you a formula on how you can calculate your credit score. There are five scoring points factors that total up your credit score. They are as follows:
• Your payment history (35%) : Your payment history takes the highest percentage. Your credit history includes information on your credit cards, lines of credit, home equity loan, installment, retail department store account, auto loans, mortgage loans, students loans. All these sum up to 35% of your total credit score. Your ability to pay back loans before deadlines, your prompt payment of all loans and not missing any payment sum up to make your credit score.
• The amount you are owing (30%): Lenders in Canada use past information on your credit history to judge your financial potentials in the future. The amount you spend on your credit card, line of card reflects on your credit score. If you have the habit of spending a greater percentage of your income, it might consequentially affect your credit score, because, if something were to happen to you and you owe a debt, you’d find yourself struggling to keep up with the payment.
• Duration of your credit history(15%) : How long you have been using your credit is also a key factor to calculate your credit score. It includes how long your oldest and most recent accounts have been open and active. How well you have been able to manage your credit score is also a factor to consider while calculating your score.
• Application for new loans(10%): The number of credit inquiries that appear on your credit history make up about 10% of your credit score. For every loan you apply for, it is documented, and this tells lenders how actively you’re shopping for credit.
• Type of card used(10%): The type of credit card appearing on your history, also called “credit mix” makes up 10% of your credit score. There’s no ideal version of a “credit mix”, as it is determined by individual choices and wants. However, whichever type of “credit mix”, make sure you are able to manage it well.
With these listed factors, you can figure out the basis of your credit score and how the figures came about. It can also make you detect any discrepancies and omissions in your credit history. There are also online applications that can give you an estimated credit score, after putting every determinant factor in place.