Tuesday, February 1, 2011

Your Credit Score Decoded

While credit scores seem to be arbitrary, they're actually determined according to a rigid mathematical formula. Every debt, credit card and late payment is weighed differently -- and these weights differ between TransUnion and Equifax. In general, Equifax Canada weighs its components something like this:
Payment History -- 35%This typically involves recent payments that are more than 30 days late, as well as any collections, judgements or bankruptcies

Outstanding Debt -- 35%This includes the number of creditors owed, credit card balances and allocated limits. A maxed out credit card will have a deeper impact on your credit score than a card with a $200 balance

Credit Account History -- 15%This refers to the length of time your accounts have been open. If you've been using a credit card for ten years and have been paying it off on a regular basis, this actually has a positive effect on your overall credit rating

Recent Inquiries -- 10%Every time you apply for a loan or credit card, lenders have to access your credit report to see your score and assess your credit worthiness. Too many of these in a 12 month period -- say, if you were shopping around for a mortgage -- can reduce your rating.

Types of Credit -- 10%If you have a mix of different types of credit -- including revolving credit, such as credit cards and lines of credit, and installment loans that you pay monthly, such as student loans -- the better your credit picture will be.

2 comments:

  1. Fabulous and useful information! Thank you.
    I had understood that if Mortgage companies were pulling reports within a short period of time ie 15 days, there was no detrimental impact on the credit bureau.

    It was assumed that you were shopping a large ticket item.

    Living in Toronto
    David Pylyp

    ReplyDelete
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