Credit Scores

Credit Score, History & Repayment - Credit Report

While lenders have historically granted credit using the 4 C's or the 4 pillars of credit, an individual's credit report has become one of the most importing factors in lending money over the past couple of decades as creditors have relaxed their lending criteria and have introduced new lending models.

A credit report is a summary of how you pay your financial obligations. It contains information based on what you have done in the past. Lenders use it to verify information about you, see your borrowing activity and find out about your repayment history.

Your credit score is based on information in your credit report and is used by lenders to predict the likelihood that you will repay future debt. Your credit score changes frequently and it is up to each lender how they interpret and use your credit score.

Credit Scores

Factors that affect your credit score include:

  • Your payment history – do you generally make your payments on time? Paying on time is crucial for a good credit rating.
  • How much you owe – your outstanding balances compared to your credit limits. Even if you have a high limit on a credit product, you shouldn’t need to use the full available limit on an ongoing basis.
  • How long your credit file has been open – a young person with negative information in their credit file and a slightly older person with no credit file will most likely both have difficulty obtaining credit.
  • How many times you have applied for new credit – how many inquires are registered on your credit file and what is the nature of those inquiries? Your credit score reflects how often you apply for new credit and how you handle the accounts that you’ve opened recently.
  • The type of credit you have – consolidation loans, personal loans, lines of credit, credit cards, deferred interest / payment plans, etc. all impact your credit score differently. The impact may be positive or negative, depending on your overall credit file.
  • Collections items or judgements registered against you affect your credit score negatively.

Credit Ratings

9 factors that affect your credit rating include the above, as well as:

  1. Save Regularly
    Have savings that you add to on a regular basis and that is proportionate to your income. Have rainy–day savings as well as long–term, retirement savings. Having savings demonstrates that you have a balanced approach to managing your money.

  2. Show Stability
    Maintain a stable address and employment circumstances. Consistency and stability generally leads to better payment history. 

  3. Manage Routine Banking Properly
    Use your bank account properly. Overdrafts and NSFs can signal financial difficulty. 

  4. Bring Balances Down
    Pay more than the minimum payment due each month on a credit card and work on bringing the balance owing down. Limit your use of the card until it is paid in full.

  5. Limit How Often You Apply for Credit
    Only apply for credit that you need. One, maybe two credit cards, with very reasonable limits based on your income, are all you should need. Pay them off in full every month.

  6. Don't Go Over Limit
    Keep all credit card balances well below the limits on all of the cards at all times.

  7. Keep Debt Payments Manageable
    Reduce your monthly debt payments (excluding mortgage payments) to no more than 15 – 20% of your take–home pay. This will allow you to manage unforeseen financial challenges effectively.

  8. Keep Available Credit Limits Low
    Keep credit limits reasonable – if used or charged to the limit, you should be able to pay the full balance off within a year and leave it paid off.

  9. Credit Reports Change Often
    Good AND bad, everything stays on your credit file for 6 – 7 years, so time could be on your side.

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