Maintaining good credit is a vital part of your financial success as a Canadian. In order to prevent bankruptcy, it is key that you know what makes a good score. From understanding what a good credit score is, to making sure you are maintaining good habits, there is so much to keep in mind. If you haven’t read our other articles on credit IQ, loans, and money management, we encourage you to do so. All of this information is extremely helpful in protecting your financial security. In this article, we are going to boil down the recipe for good credit.
For more information on this topic, continue reading below.
Know the Big 5.
Credit scores are calculated based on five key pieces of information:
- Payment History (when you make payments, are you timely? late? are they in full? etc)
- Credit Utilization Ratio (the amount of credit you use vs. your available credit limit)
- New Credit (how many hard inquiries are made)
- Mix of Credit (what kinds of credit do you have/use?)
- Credit Age (how long have you managed your credit?)
It is important to know how these five factors influence your credit score. This way you can make a plan to maintain or attain your ranking. It should be noted that some lenders do not include rent payments on your report. If this is the case for you, it is important that you take that into consideration when utilizing your lending facilities each month.
How to Maintain Good Credit?
Maintaining your accounts means spending your money wisely and being prepared to make payments when needed. Those with good accounts are diligent about paying bills on time, keeping card balances low, limiting new applications, and checking their report.
Pay Your Dues On Time.
Paying your bills on time is the easiest way to build your reputation with creditors. Even for items that might not necessarily be on your report. If you fall behind on payments for certain bills there’s a chance that they may start to influence your score. Continuing to pay for all bills, on-time, is vital to the future health of your borrowing power!
Don’t Hit your Limit!
Another important thing to keep in mind is to spend only 30-35% of your combined facilities. Even if you plan to pay off your balance on time, lenders will see you as a bigger risk. Calculate your total available balances from credit cards, LOCs, and loans to determine what your 30% threshold is. Then, try to keep your spending within the 30-35% threshold in order to avoid potential dings to your overall score.
Apply For New Lending Sparingly.
It is crucial that you limit the number of times that you apply for new credit. These inquiries can have a negative impact on your overall score. Too many hard inquiries in a short period of time can make you look risky to lenders. This is why it is important to only authorize a hard check when necessary. However, if you are shopping for a car loan or personal loan, multiple checks will be treated as one. This is because lenders can recognize that you are simply searching for the best rate. It should also be noted that opening a new account will lower the average age of your credit.
Look at Your Report.
Even though you do everything right when it comes to your credit, other people can still mistakes. It is very possible that errors will end up on your bureau report. These mistakes could negatively affect your overall score. Things like identity theft and fraud are also common reasons why people may notice incorrect information on their reports. Be sure to read through your report carefully when you get the chance. And, report any discrepancies to your bureau right away.
What’s a Good Score?
Generally, the credit score range is anywhere between 300-900. The higher your score is, the better your credit rating will be. According to Equifax in Canada, a good score is generally within the 660-724 range. A very good score would be in the 725-759 range. And, an excellent score is considered to be anything above 760.
These numbers are used to assess how well you manage your borrowing. Lenders can access these scores to determine the risk they will be taking in accepting you as a client. Your score can also be accessed by a new employer, or when you are looking to rent a property or vehicle.
Learn more about all things credit by visiting our credit education centre or contacting us today. We’d be happy to help you get back on your feet with a new vehicle! Feel free to reach out with any questions that you have about getting a car loan after bankruptcy. We look forward to helping you achieve your goals. Don’t forget to leave us a review on Google Business!