5 Things You Need to Know about Credit Scores
/ Author: CLAC Staff
/ Categories: Guide magazine /
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5 Things You Need to Know about Credit Scores

Your credit score defines your financial personality, so it’s important to understand what it is, how it’s used, and ways to keep it healthy

What is a credit score?

A credit score is a three-digit number that reflects your financial history and is used as a tool to judge your financial reliability. Credit scores range from 300 to 900, and you want as high a score as possible. 

300 to 599 = Poor

600 to 649 = Fair

650 to 719 = Good

720 to 799 =Very Good

800 to 900 = Excellent

How are credit scores used?

Credit scores are used by companies to assess whether they are comfortable extending you a loan or credit. For example, your credit score is checked when applying for a credit card or line of credit and when applying for a mortgage. Those with poor credit can really struggle to access financing when they need it.

How are credit scores calculated?

Almost every financial transaction you make contributes to your credit score.

Payment History = 35%
Timely payments improve your score while missed or late payments lower it. Frequency, timing, amount, and recency of late payments are also considered.

Used vs.available credit = 30%
This is the amount of credit you hold in contrast to the amount you’re using. Using less than what’s available will yield a higher score.

Length of history = 15%
The longer you’ve had credit while using it responsibly, the greater your score. Time starts when the account is opened. Credit history is not transferable between countries.

Public records = 10%
A past consumer proposal, bankruptcy, insolvency, or interaction with a debt collection agency significantly lowers your score. Inquiries 10% While all accesses to your credit score are logged, only ones related to you actively seeking new credit negatively affect your score. These are referred to as hard hits.

How can you find out your credit score?

Get it online on the Equifax or TransUnion websites—most lenders use their scores. You can get a free credit report as well, but this usually doesn’t include a credit score. Some companies offer free credit scores, but they may use a different scoring system.

How can you improve your credit score?

Review your reports. This will help you identify any false or fraudulent information, which can then be corrected.

Pay on time. Payment history plays a crucial role in your credit scores, highlighting the need to avoid late payments. To ensure timely payments, automate your payments or set up reminders.

Limit applying for new accounts. Applying for new credit triggers a hard hit, which typically has a negative impact on credit scores, especially if you have a lower score.

Keep your credit utilization rate low. Contrary to popular belief, your income does not have a direct impact on your credit score. What matters instead is your credit utilization. Try keeping your outstanding monthly balance to about 30 percent of the total amount of credit you have available.

Avoid using a third party. Claims that a company can improve your score for a fee are virtually always false.

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