5 may 2010
Credit scores are calculated by inserting the data from your credit report into software that analyzes it. The major credit reporting agencies may use different scoring software, that’s why the results can differ.
Why are credit scores sometimes called FICO scores?
The software used to calculate credit scores was created by FICO – Fair Isaac Corporation.
Which parts of a credit history are the most important?
35% – Your payment history
30% – Amounts you owe
15% – Length of your credit history
10% – Types of credit used
10% – New credit
Your payment history consists of:
• Number of accounts paid.
• Negative public records or collections.
• Delinquent accounts:
1. total number of past due items
2. how long you’ve been past due
3. how long it’s been since you had a past due payment
What you owe:
• How much you owe on accounts
• How much of your revolving credit lines you’ve used (it’s necessary to make sure you’re not over-extended)
• Number of zero balance accounts
Length of credit history:
• Total length of your credit history
• Length of time since the first accounts were opened
• Time that’s passed since the last activity
• The longer your good history is, the better your scores are
Types of credit:
• Total number of accounts and types of accounts.
• A mixture of account types usually generates better scores.
Your New Credit:
• Number of accounts you’ve recently opened and the proportion of them compared to total accounts
• Number of recent credit inquiries
• The time that’s passed since recent inquiries or newly-opened accounts
• If you’ve re-established a positive credit history after scertain payment problems
• General checking to make sure you aren’t planning to open numerous new accounts
Credit scoring software only considers items on your credit report. Lenders typically look as well at other factors, for example, income, employment history and the type of credit.
What’s a Good Credit Score?
Credit scores vary from 300 to 900. The higher your score is, the less risk a lender faces. As your score rises, the interest rate decline.
Borrowers with a credit score over 700 are offered more financing options and better interest rates. But you shouldn’t worry, if your scores are lower. There is a special mortgage almost for everyone.
The credit scores among the Canada population:
Up to 549: 4%
550 – 599: 4%
600 – 649: 6%
650 – 699: 11%
700 – 749: 19%
750 – 799: 27%
800 – 849: 24%
Over 850: 5%
Multiple Credit Scores
Banks often use credit reports and scores from two main credit reporting agencies: Equifax and Transunion. They’ll probably use the middle score. Ask your broker to find out which credit scores will be used and how they can influence your loan application.
1. Start your credit bureau as soon as you arrived in Canada
- Get a secure Visa from your bank – place $500-$1000 as a deposit;
- After 3-6 month you can apply for regular credit card at different financial institution.
2. Don’t get too many credit cards – it will be difficult to manage them all.
3. Be careful with “store” cards (Bay, Zellers, Future Shop etc.) .The deal is that they are very easy to get, the interest is too high and missing your payment even only for a few days can seriously influence your history.
4. Try to avoid collections.
- Try to solve any outstanding balance in time.
- Always get a written confirmation that debt has been settled and keep it for your records for 7 years;
5. Do not close active credit accounts – pay it to 0 and simply don’t use credit card or line.
- The more good credit records you have in your bureau – the better your score is.
6. Try to avoid joint debts.
- One debt will be showing for both borrowers – each borrower is responsible for full balance;
7. Check your credit history and score at least once a year.
- Online at www.equifax.ca
- When you do self-check, inquiries are not affecting your score;
- Free report (without score so) can be obtained from Equifax office once a year.