One of the biggest myths I hear often is when I ask to check someone’s credit, and, they don’t want me to because it will “affect their score”. Hey – I get it – you want to make sure your credit maintains its excellence and you’re afraid if I check it, things will go sour. Well! Do I have a surprise for you!
Your credit score is made up of six important factors, and they each have their own “weight” of importance. Let’s start at the top.
The biggest influence of your credit score is? PAYMENT HISTORY, representing 35% of your credit score.
So, if you’ve been late on anything – that’s bad. If you’re late repeatedly, bad. If you’ve had collections in the past (but have paid them off) that’s still really bad. If you’re on time today but have been late before? Really really bad, too. If you’ve had recent collections and haven’t paid them? Really terribly bad. So the biggest influence on your credit is your payment history. What do you do? Simple. Grab a void cheque from your online banking, give it to every single one of your creditors, and make sure you never miss a beat by having them take out the money.
Just, make sure you have the money.
The second biggest influence is UTILIZATION. This represents 30% of your credit score.
What’s that? Simple! It is a measure of the following:
- how much credit you have
- how much room you have on your credit
- how many accounts you have and for how long
- how many of those accounts have balances
- how many of them are over the limit (that’s REALLY bad)
- how many of them are over 75% of the limit (as in, you have a $10K limit, don’t be at $7501 or more)
- how many of them are at 50% of the limit (this is where you want to be, if you maintain a balance a lot)
Believe it or not, carrying a balance, even at limit, and paying it off at the due date is not bad at all. Carrying it past the due date is bad, though.
In third place we have LENGTH OF CREDIT HISTORY which accounts for 15% of your credit score. This is pretty self-explanatory. How long have you had active credit for? That’s it. Easy as pie. Can’t change time, right? So – open credit, use credit, don’t close credit if you don’t have to, and you’ll develop a nice long history of having good credit history.
HAVING MULTIPLE TYPES OF CREDIT AVAILABLE is good, and is the fourth factor in your credit score. This is 10% responsible for your credit score. So – if you have: a line of credit, credit card, and a car loan, that’s different TYPES of credit. That’s good. If you only have 2 visa cards with $500 limits on both? Although I know why you’re doing this; you want to be responsible – it’s not great for your score overall. Try to have one Visa, one Line of Credit, and you maybe had a loan in the past. The more type of credit, the better.
5% OF YOUR CREDIT SCORE IS MADE UP OF YOUR INQUIRIES. THAT’S RIGHT. 5%. A pretty low number if you ask me. That’s like me saying if I check your credit there’s a 5% chance of your score going down one point that day. Pretty low, eh? Surprising, too.
And the LAST 5% is made up of A CALCULATION OF EVERYTHING ABOVE. Credit is not just one thing – it’s everything! So 5% of your score is made up of the “system” figuring out all the above and weighing the pros and cons and coming up with a credit score.
I want to finish off by saying one other thing. When you see your credit score via the available apps and banks that give you access, don’t be alarmed if what I see is not what you see. Example – someone called and their score is 710. I checked and it was 682. Guess what? Mine is the right one. I check for credit worthiness and you’re being given a score that represents your repayment history. A HUGE difference. My score is an overall beacon of your credit impression and ability to borrow. Your score is just a history of how good – or bad – you have been in repaying. Not the same thing and don’t be alarmed when my score is lower.
There are many ways we can try and fix your credit. There are some things I simply can’t help. Be on time, keep your balances low, pay your debts, but if you have problems we can call the credit agency and figure out reporting dates and see what we can do. Some credit is fixable, some is a disaster. At the end of the day – YOU are responsible for this and I am here to help you along the way to borrow better.
I welcome all questions!