If you’ve never looked at your credit report or credit score, we can’t recommend it highly enough. It is important that all people understand the impact of their financial situation not only on their ability to obtain credit, but also on the impact it may have on other areas of their lives. Did you know that owners and employers can check your credit report and use this information to decide whether to rent an apartment or rent a property? And checking your report regularly, looking for errors or fraudulent activity, can also be an effective way to prevent identity theft.
How do I view my credit history?
There are two main consumer reporting agencies: credit bureaus. These agencies keep track of personal information, past and present credit accounts, and the payment history of people with one type of credit.
You can request your personal credit report free of charge from the official companies. If you don’t want to wait for mail, you can access your information instantly, online, for a fee. Credit bureaus use information from your credit report to give you a credit score. Your score is used to determine your credit worthiness, based on how much credit you have and how you have used it in the past. Scores range from 300 to 900, 300 being considered poor and 900 being excellent. It is also important to note that most lenders and creditors report to only one of the two offices. This is why you will get two slightly different scores.
Factors That May Affect Your Credit Score
Credit bureaus take into account five main factors when calculating your credit score. They are weighted as follows:
Payment history (35%)
They will review the frequency with which you pay your bills and the frequency of late or missed payments. If you have accounts that have been collected or have filed a consumer proposal or bankruptcy, your credit score will be reduced accordingly.
Current debt (30%)
The higher your debt, the more you represent a borrowing risk for lenders. Keeping your debt below 35% of your total credit limit will help keep your score healthy.
Account history (15%)
The longer your accounts have been open, the better, especially if they are in good standing.
Number of inquiries (10%)
The number of times you apply for new credit can affect your credit score. Those made during the previous year are taken into account. Several consecutive serious surveys can have a negative impact on your score.
Types of accounts (10%)
The types of credit accounts are taken into account in your credit score. If you have different types of credit, this highlights your ability to manage different types of credit.
How Your Payment History Affects Your Credit Score?
Your payment history is the most important factor in determining your credit score. Lenders want you to pay back the money they loaned you. Those who check your credit score can use the 3-digit number as a factor in determining your credit standing, but they can also take into account the ratings they see on your credit report.
If your report contains multiple missed or late payments, you may not be able to borrow money and your account may be set aside by employment, insurance or rental of real estate. On the other hand, if you pay on time, your credit score will always be higher.