What Is A Credit Score And Why Does It Matter?
November 16, 2016
Credit. We love it, we hate it, and for many of us, we use it on a consistent basis. So much of a consistent basis, that it’s probably important that we know as much about it as possible. After all, these magical numbers can define our financial status in the eyes of many.
You’re probably thinking, why should I care? Well, we’re going to tell you.
When we use credit, and neglect to focus on the importance behind responsible use, there are many consequences that could have an effect on your credit score.
First things first: do you know your credit score? If not, take a minute to go to Borrowell and get your score for free. Then come back here.
Whether you’re currently dealing with a good, or bad score, it’s important to get a feel for ways to keep it good, all the while adjusting your financial lifestyle to make it better!
Trust us, we wish bad credit scores didn’t exist as much as the next guy, but luckily for you, we can help you improve them for the better (and in a timely manner, too).
So let’s break down what a credit score really is, and then learn how to go from “good” to “great”.
Credit scores can range from 300-900, and the higher the score, the better.
But what do those numbers even mean? In Canada, we have two credit reporting agencies –Equifax and TransUnion. They collect information on consumers like us and how we pay our bills, when we pay our bills, and how long it takes us to pay our bills before recording this in our files.
Did you know that the average credit score in Canada is 749? Are you above or below that?
What can having a good credit score do for you?
The fact that you have joined us (hi!) at Borrowell, means you are clearly preparing to attack a large financial goal. And we are pumped to help you get there.
A good credit score can help you attain many things you’ve been putting off for months… even years. Things such as: paying off some debt, buying a home or preparing for the perfect wedding. Your credibility as someone who desires a loan relies on this all important number. And we are ready to get you to the number you need to hit.
There are five main things that impact your overall score:
- Your payment history
- How much credit you have available
- Length of credit history
- Number of inquiries (to receive further credit)
- Types of credit (loans, credit cards, etc.)
Each time a payment is made more than 30 days late, a delinquency will be on your report. These late payments can drastically affect your credit score.
So what can you do to change this aspect of your score?
Two easy steps…
- If you haven’t been making consistent payments, start today! Set up preauthorized payments on all of your bills, especially the ones that report to the bureau (mortgages, student loans, auto loans, and credit cards). These can also include your utilities, cell phone, insurance, etc. Oh, and surprise, surprise – paying your bills on time accounts for 35% of your credit score.
- Try to keep at least 25% of your credit limit available at all times. The amount of credit you have available is more of a factor than you might think. Often times, we run up balances our cards unaware of the damages it can cause. So what is credit utilization? Credit utilization is the ratio of your credit card balance to your credit limit as listed on your credit report. So if you have a combined credit limit of $10,000, keep your total balance under $7,500.
These small changes can start to take effect TOMORROW. By keeping your credit and financial security consistent (such as making payments on time and regularly), you will be seen as more responsible.
This post is part 1 of Borrowell’s Credit Score Course. Know someone you’d like to invite to take Borrowell’s Credit Score Course? Click here to email them an invitation to our course or click here to post to Facebook.