Your credit score is a mathematical formula that allows a potential lender to quickly evaluate your credit behaviour. The information for your credit score is taken from a credit report.
Your credit score will go up or down based on several factors:
- Payment history: Do you make your payments on time? Do you ever miss payments?
- Current debt: Do you carry large balances on your credit cards or line of credit?
- Established credit history: When did you start “borrowing” and making payments?
- Inquiries for credit: How many credit applications have you filled out? Are you applying for too much credit?
- Types of credit: Do you have different types of credit – credit card, auto loan, personal loan, line of credit?
Raising your credit score:
You have an important role to play in your credit score and you can influence your score by making responsible credit choices:
- Pay your bills every month and pay them on time.
- Don’t carry high balances on your credit cards, even if you’re making the minimum payments every month. Outstanding debt influences your credit score.
- Avoid applying for retail cards just to save 20% on your purchase (unless you plan on using the card regularly and paying down the balance). Every inquiry for credit is kept on your credit report, and too many can cause a potential lender to wonder why you suddenly need so much credit.
- Remember that it takes time to establish a credit history. Open a credit account and keep it open to establish a history of credit use. Establish a pattern of making your payments on time.
- Review your credit report at least once a year. This will help you catch errors, fraud or identity theft that could affect your ability to obtain credit.
Sources: Equifax Canada (www.equifax.ca)
TransUnion Canada (www.transunion.ca)