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All About Your Credit Score
Credit scores are a way for potential lenders to measure your financial reliability before lending you money. Suppose you have a high score, usually 700 or better. In that case, you will be able to receive better interest rates and higher lines of credit. If your score is low, you may be required to make a larger down payment or deposit and be charged a higher interest rate since you are seen as a risky borrower.
The trouble is, figuring out how to get a high credit score can be confusing. We’re going to break down how your credit score is determined, how you can improve it, and mistakes you may be making that could negatively impact your credit score.
How Your Credit Score Determined?
First, before we work on improving your credit score, it’s important to understand it. 32 categories make up a score. In the Canadian mortgage industry, we see a score based on 18 of those categories. In contrast, the used car sale industry generates its score based on 14 of those categories. We use a credit reporting agency called Equifax to view your credit score and determine whether you are a reliable borrower or not.
Generally, the breakdown of credit score tiers is as follows:
- Excellent credit: 760-900
- Good credit: 725-759
- Average credit: 660-724
- Poor credit: 560-659
- Very Poor credit: 300-559
Credit score percentage categories
The point system is very important related to the interest rate you obtain. The different tiers allow the lenders to enter your mortgage in a specific low-risk mortgage fund pool. They pay lesser insurance on that fund, hence the benefit of a low rate.
Your score is based on the following categories and their respective percentages to make up a score:
- On-time payment history: 35%
- Credit utilization: 30%
- Length of history: 15%
- Soft and hard credit check: 10%
- Diversity of credit: 10%
Something you may not have known, the area you live in also affects your score. Equifax has a measuring tool based on your neighbors. It is only a minimal factor, but it could help you gain or lose a few points. We compiled 4 easy hacks to increase your score by up to 125 points within 1 year.
What Negatively Impacts My Score?
If you find yourself with a score under 700, you will probably be subject to higher rates and fees. Consumer proposals impact your score negatively, and you need to be discharged for two years before applying with some institutions. When we pull your score, you will lose about 3 points, however, because we are registered with Equifax as a mortgage brokerage, and because mortgages are considered the largest investment Canadians make, you get the 3 points back within 30 days.
If we pull your credit again during the 30 days, it will extend the time without costing you any more points. Whenever we submit your application to a lender, the lender will accept our Equifax submission and will not pull another credit hit. Most lenders do. For used car sales, the finance agent will often send to car finance companies hoping for a bidding rate; each car finance company pulls a credit check. So in one day, you can lose 30 points.
Bankruptcies need seven years, and some lenders like Scotiabank will not approve a loan in your name. Don’t despair; we have other bank lenders that will take you on.
Here are the 4 hacks to increasing your credit score
Improving your score may be easier than you think. You should know that it took time for the score to go down, and as such, it will take time to go back up, but we have some shortcuts:
- Hack 1: You should always keep your balances at 20% of your limit. You can do this by either being careful not to spend more than 20% of your limit or to pay down balances so they are below that threshold. As such, you can also ask to increase your limit by creditors to make sure you remain in the 20% debt zone. This 1 of 4 hacks will increase your credit score by up to 20 points in less than 60 days.
- Hack 2: Lenders want to see two active trades for two years. Cell phone companies such as rogers, Telus, Video Tron, Bell Mobility, and others report to the credit bureau like any credit card. If you are thinking of canceling some credit cards, think twice. Consider the value of their history. These 2 of 4 hacks will increase your credit score by up to 30 points sustainably with time.
- Hack 3: Set up auto payments for your credit card payments from your online banking institution and not from the creditor. In case there is a dispute, you have time to react. This shortcut ensures that you never miss a payment or fall late behind on a payment. These 3 of 4 hacks will increase your credit score by up to 25 points gradually with time.
- Hack 4: Settle your debts. Settling debts does not impact your score negatively. Here is a secret, credit card companies are mandated to settle if you are in default. Our affiliated debt management agency can settle the debts up to 0.50 cents on the dollar! These 4 of 4 hacks will increase your credit score by up to 50 points within 6 months.
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Where Can I Find Out What My Credit Score Is?
You are entitled to one free credit report per year called a Consumer Disclosure from Equifax or TransUnion. Checking your credit report each year will tell you whether your credit score is low or high.
It will let you know if there have been any fraudulent lines of credit taken out in your name. This is also a good way to see any negative information that’s older than seven years that simply hasn’t been removed. It is important to remember that Equifax is a system and not a human, so sometimes, the system may overlook something that should have been removed. If that is the case, you can ask them to fix the problem and hopefully see your score improves.
These are the 4 hacks to your credit score. Keeping your credit score up is vital to helping you get loan approval at lower rates. The easiest way to keep your score up is to pay all of your bills on time each month. Make sure to look at your credit report each year to check for discrepancies and have them fixed in order to avoid any problems in the future.
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