The Power of Your Credit Score

The Power of Your Credit Score

It seems that we are being bombarded everywhere we turn these days with advertising suggesting that we should know our Credit Score.  But what exactly is a Credit Score?  In Canada, Credit scores range from 300 to 900, with 900 being the best. These three digit numbers we know fluctuate based on our credit activity, however we really don’t understand the components that cause the change.  We also know that banks and businesses lend money and set interest rates based on our Credit Scores.

Banks and business use Credit Scores as a very important part of their lending process where the categories range from excellent to poor as follows:

  • 760 + excellent
    • no issues obtaining credit
  • 725 – 759 very good
    • usually no issues obtaining credit
  • 660 – 724 good
    • most lender will extend credit, however expect higher interest rates
  • 560 – 659 fair
    • expect high interest rates from lenders that will extend credit
  • 300 – 559 poor
    • may still have access to credit, however you will be paying high interest rates. The interest rate on any loan may be too difficult to handle, you need to consider financial situation before accepting any new credit

These scores are calculated by Credit Bureaus which are private companies that collect, store, and share information about your credit history.  In Canada the main two companies are Equifax Canada and TransUnion Canada.  These two companies own the formulas used to calculate your Credit Scores and will not disclose the actual formulas to the public.  This means no one knows exactly how their Score fluctuates based on their credit actions.  However, the main components used in calculating your Score are:

  • payment history
  • credit history
  • available credit use
  • number of credit report inquiries
  • types of credit used

Additionally, the main issues which lead to lowering a person’s Credit Score can include:

  • using too many finance companies
  • holding high credit account balances
  • not enough recent revolving credit account information
  • holding high accounts balances in relation to your loan amounts
  • defaulting on account payments
  • filing of a bankruptcy, consumer proposal, or Credit Counseling debt management plan
  • too many credit report inquiries

 

We hope the information discussed above has given you some insight into Credit Scores and how they may affect you.  We at Allan Marshall & Associates Inc. are always available free of charge to discuss any matters dealing with your credit and debt.

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