Coca-Cola hides its secret recipe for the original soda formula in a vault at SunTrust Bank in downtown Atlanta. The Big Mac protects its copyrights in countries where it may not even sell. Equifax and TransUnion protect their credit-rating formulas equally jealously, because they would otherwise be easy to clone. Nonetheless, there is a fair amount of information available.
The Factors that Influence Your Credit Score Most
Credit scorers base their calculations – details are secret – on the following factors:
# Payment History – 35%
# Credit Utilization – 30%
# Length of Credit History – 15%
# Soft and Hard Checks – 10%
# Diversity of Credit 10%
Let’s unpack these factors in more detail and discover what’s behind them.
On Time Payments 35%
This is the record of how well you serviced your debt in the past except any mortgages. If you have any bankruptcy filings or liens against you they also slot in here. There appears to be consensus poor payment incidents deduct more points from a high credit score than a lower one. The exact details may also be locked up in bank vaults.
Capacity Used 30%
This factor reflects how much credit you are using that’s open to you. In other words, to what extent you max clothing accounts and credit cards. Analysts suggest it’s best to keep your overall utilization across all credit lines under 30%
Length of Credit History 15%
Strangely, the credit bureaus rate people higher who use their credit lines all the time. They will mark you down if you have a short credit history, or don’t use your accounts regularly. Strange but true.
Past Credit Applications 10%
Your credit score does not change if you check it yourself, or some else does for non-lending purposes. Hard checks happen every time you apply for a credit card or loan. They mark you down if this happens too often because you might have financial difficulties.
Types of Credit Used 10%
Having different types of credit lines – mortgage, cards, clothing accounts, etc. – is positive because it suggests you know how to borrow responsibly. Therefore you need to be constantly in debt to get a top credit score. Stranger but true too.
How to Interpret Your Actual Credit Score
Canadian credit ratings range between 300 and 900 points. This is how lenders interpret them (based on Equifax):
# 741 to 900: Excellent, you qualify for best rates and maximum credit
# 690 to 740: Good, you are financially responsible and should qualify for most loans
# 660 to 689: Fair, expect to pay higher rates because you have been defaulting
# 575 to 659: Below Average, expect your credit to cost even more, with no rewards
# 300 to 374: Poor, you are unlikely to qualify for new accounts, mortgages, or loans
You Have a Right to Object to Your Credit Score
Credit bureaus base their records on what financial providers tell them, and these lenders do sometimes makes mistakes. Therefore, it pays to use your free annual credit bureau checks. However the really good news is individual records generally expire after 7 years. Stonegate Equity Ltd. provides this information in good faith and it does not constitute financial advice