Nov
22
2019
By Keith Wong
Hello;
Here is a list of the main factors which affect your credit score: (comments from Equifax and TransUnion)
Payment History
- Pay all your bills on time. Paying late or having your account sent to a collection agency has a negative impact on your credit score
- A good record of on-time payments will help boost your credit score
Delinquencies
- TransUnion lists: "severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections"
Balance-to-Limit Ratio
- Try not to run your balances up to your credit limit. Keeping your balances below 75% of your available credit may also help your score (So avoid maxing out your credit)
Recent Inquiries
- Avoid applying for credit unless you have a genuine need for a new account. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can actually repay. A flurry of inquiries will prompt most lenders to ask why.
- There are two types of credit bureau file inquiries: "hard inquiries" such as application for new credit, which will lower your score; and "soft inquiries" such as requesting your own credit report, and businesses checking your file for updates to your existing credit accounts for approving credit limit increases, for example - these will not appear on your file or lower your credit score.
Length/history of Accounts
- Having a long history on your credit accounts earns you more points, so avoid closing your accounts if you may need them in the future. A good credit history is built over time.
Variety of Credit Accounts
- Having a mix of credit products (credit card, retail store card, line of credit, car loan, etc.) will procure more points on your file than having only one type of credit, such as only credit cards.
Too Many Accounts
- Having a lot of credit accounts, especially if many of them carry balances, is another warning sign of financial distress, so if the Credit Bureaus think you have too many, they will deduct points.
Errors
- One of the major causes of point loss to your credit rating are bureau reporting errors. Errors can be delinquent accounts reporting on your file that do not belong to you, late payments that were not late, and credit that is created from identity fraud.
Moving/Time at Address
- A large number of credit file requests within a short period due to moving will lower your credit score. But on top of that, the length of time at your current address will influence your score, so try not to move a lot as it will affect your credit rating. The longer you remain at one address, the more points you receive.
Changing jobs/employers frequently
- The longer you stay at a job, the higher points your credit score receives. You are seen as having a secure job and therefore being a secure, less risky credit consumer.
Having no mortgage, or no housing information on your file
- The credit bureaus assign certain points for those who have mortgages and those who rent, and deduct points for those whose situations is unknown to them. As soon as you pay off your mortgage, the reporting account is removed from your file and you are in the unknown category, which will actually remove points from your credit rating!
Having high revolving credit balances
- When you have high balances that are rotating between different credit accounts, this is a warning sign that you could be in financial trouble and therefore you could be considered a credit risk.
Having no debt
- Believe it or not, having no debt is bad for your credit score! If you need to borrow money and have no debt or debt history as well, you will have a harder time of it. If you do not have a history of credit use on your file to provide something for creditors to evaluate, they will see that as a risk, and you will be deducted points on your score for not having credit accounts.
Sincerely, Mike Busby
**(from Canadian Money Saver Magazine Nov/Dec 2019 issue titled “Credit Rating 101”)
