What is a "Credit Score"?

What is a credit score?

Your credit score is calculated based on
the information contained in your credit history, which
is tracked by Equifax and Trans Union.

While knowing your actual score is important,
understanding the key factors affecting your credit score
is equally relevant when it comes to your credit standing.

The credit score also referred
to as a FICO Score, which is a mathematical
formula created by Fair Isaac and Company.

The credit score is used
by most lenders to help them decide whether or not you're
a good credit risk. Equifax and TransUnion will crunch
the numbers from your credit report, and spit out a score
somewhere between 300 and
900.

A low score indicates you're
a bad credit risk; a score of 750 or higher puts you in
a lender's good books.

HOW CREDIT SCORES ARE CALCULATED

FACTOR WEIGHT Payment history Bankruptcies, late payments, past due accounts and wage attachments 35% Amounts owed Amount owed on accounts, proportion of balances to total credit limits 30% Length of credit history Time since accounts opened, time since account activity 15% New credit Number of recent credit inquiries, number of recently opened accounts 10% Types of credit Number of various types of accounts (credit cards, retail accounts, mortgage) 10%

After you get your score...

1. Order a copy of
your credit report. Review it carefully and correct any
significant errors.

2. Pay your bills on time.

3. If you have a questionable
credit history, open a few new credit accounts, use them
responsibly, and pay them off on time.

4. Don't open credit accounts
you don't intend to use. Having five or six of the same
type of credit card (Visa, for example) does not work in
your favour.

5. Note that having a credit
card or instalment loan can help boost your score, so long
as you don't have too high a balance and you pay it off
in a timely manner.

6. Keep your balance low
in relation to your available credit. If your credit limit
is $10,000, keeping your balance below $2,500 (or 25 per
cent of your limit) will improve your score.

7. Pay off your credit
card debt instead of moving it around to lower rate cards.
Moving balances to other credit cards (called a “balance
transfer”) and closing out the old account can hurt
your score.