Credit Scores

Discover how credit works and what to watch out for. 

Credit Score, History & Repayment – Credit Report

credit report is a summary of how you pay your financial obligations. It contains information based on what you have done in the past. Lenders use it to verify information about you, see your borrowing activity and find out about your repayment history.

Your credit score is based on information in your credit report and is used by lenders to predict the likelihood that you will repay future debt. Your credit score changes frequently and it is up to each lender how they interpret and use your credit score. 

Credit ratings are a pillar in the credit granting industry. Lenders use your score and report to determine how much they will be able to lend you, what interest rate you’ll have to pay, and if there are any other terms or conditions they’ll impose. Here are insights into how this system works.

Credit Scores

There is a specific set of factors that determine your credit score, but the first 2 carry the most weight. The good news is that you have a lot of control over all of them. If you’re struggling with any one part, please contact us and we can help you get back on track. Knowing your own credit score isn’t that useful. It changes frequently and you’re not lending yourself any money. 

Your payment history – do you generally make your payments on time? Paying on time is crucial for a good credit rating.

How much you owe – your outstanding balances compared to your credit limits. Even if you have a high limit on a credit product, you shouldn’t need to use the full available limit on an ongoing basis.

How long your credit file has been open – a young person with negative information in their credit file and a slightly older person with no credit file will both have some difficulty obtaining credit.

How many times you have applied for new credit – how many inquires are registered on your credit file and what is the nature of those inquiries? Your credit score reflects how often you apply for new credit and how you handle the accounts that you’ve opened recently.

The type of credit you have – consolidation loans, personal loans, lines of credit, credit cards, deferred interest / payment plans, etc. all impact your credit score differently. The impact may be positive or negative, depending on your overall credit file.

Collection items or judgements registered against you affect your credit score negatively.

 

 

 

Credit Ratings

An overall credit rating is composed of more than just the factors that determine your credit score. This means that if your credit score isn’t as high as you need it to be, you can demonstrate credit worthiness to a lender in other ways too. That can help with a credit application. So in addition to the above, here are 9 factors that affect your credit rating: 

1. Save Regularly

Have savings that you add to on a regular basis and that is proportionate to your income. Have rainy–day savings as well as long–term, retirement savings. When you have savings, it shows that you have a balanced approach to managing your money and can get by in a pinch.

2. Show Stability

Consistency and stability generally leads to better payment history. Maintain a stable address and employment circumstances. Even if you need to change employers, if the type of work you do stays the same, let lenders know that when you apply for credit. 

3. Manage Routine Banking Properly

Use your bank account properly. Overdrafts and NSFs can signal financial difficulty. If you find yourself overdrawing your account, ask if you qualify for overdraft protection, or better yet, establish a realistic budget to keep your spending within your means.

4. Bring Balances Down

Pay more than the minimum payment due each month on a credit card and work on bringing the balance owing down. Limit your use of the card until it is paid in full.

5. Limit How Often You Apply for Credit

Only apply for credit that you need. One, maybe two credit cards, with very reasonable limits based on your level of income, are all you should need. Pay them off in full every month.

6. Don’t Go Over Limit

Keep all credit card balances well below the limits on all of the cards at all times. Going over limit will instantly affect your credit score. If you normally carry a balance close to 75% of your available limit, that too will drop your credit score.

7. Keep Debt Payments Manageable

Reduce your monthly debt payments (excluding mortgage payments) to no more than 15% to 20% of your take–home pay. This will allow you to manage unforeseen financial challenges effectively.

8. Keep Available Credit Limits Low

Keep credit limits reasonable – if used or charged to the limit, you should be able to pay the full balance off within a year and leave it paid off. Leaving it paid off is often the catch. Lenders don’t want to see that someone is relying on credit to make ends meet.

9. Credit Reports Change Often

Good AND bad, everything stays on your credit file for 6 – 7 years, so time could be on your side if you’re trying to recover from past difficulties. If you’re curious to see what is on your own credit report you can obtain a copy for free. It will not affect your rating negatively in any way. Keep in mind that your score is not automatically provided with your credit report. It is separate and you will need to pay for hit. That said, if your credit bureau report is fine, your score will be too.

Having trouble with your debts?

We can help. Give us a call at 1-888-527-8999 or send us a quick note to call you back and we’ll be in touch to answer any questions you may have about debt. We’ll help you find a solution that works best for you.

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