What Goes Into Your Credit Score?
Credit score is important when applying for a mortgage. Do you know all that goes into your credit score
Below is a list of the major components that make up Canadian’s credit score.
1. Payment History
Payment history is one of the most important aspects of an individual’s credit score.
People are rated from R0 through R9 based on their credit history. R1 is the top rating and signifies payment within 30 days of due date. Higher numbers represent a decrease in payment time from “on time” to “one month late”, and beyond. The lowest rating level, R9 shows bad debt that is placed for collection. R0 means too new to rate, or that credit has been approved but not yet used.
Some points on the rating system:
- Rating agencies use credit information on over 24 million Canadians, tracking all kinds of debt and how the population pays it back. This includes credit cards, lines of credit, banks loans, car loans, and mortgages.
- Late and missed payments, or maxed out credit cards, will lower credit scores.
- Scores can be changed. They represent specific points in time and thereby can be changed based on present and future behavior.
- If people have a poor credit score it can be increased by paying back debts on time. However, this means that the individual will need to have debt of some sort.
- Don’t apply for credit unless necessary. Opening multiple accounts too quickly can negatively affect credit rating. It may be taken as a sign that the individual is experiencing financial difficulties or taking on more debt than they can handle.
2. Credit Product Type
Mortgages are different then credit cards. Credit cards are different from car payments. Credit product type refers to the type of credit people take on and the risk involved with the different forms of credit.
Utilization refers to how credit is employed. If credit balance is consistently pushed to the limit, then the credit score will drop. It doesn’t matter how high that limit is, could be $1,000 or $10,000, the result will be the same.
If you have any questions about your credit score and how it relates to your mortgage do not hesitate to ask!