Credit score basics

A credit score is a number that tells something about your borrowing history. It is largely based on your credit history.

Your credit history is a snapshot of your financial activities over the last 7 years or so. It is not just the number of credit cards or loans you have, but also your payment habits, how much of your available credit you use, and how often you apply for new credit.

Your credit file is maintained by the two major credit bureaus of Canada: Equifax and TransUnion.

With this information, a credit score is computer-generated. It gives a potential lender indication on your likelihood of repaying a future debt. Most lenders have a “cut-off” score; if you are under that score, you probably won’t qualify for credit.

There are different models to calculate credit scores. It is pretty common for your score to be slightly different from one lender to another.

A high credit score could also mean a lower interest rate or a lower insurance premium. In certain cases, it could also mean getting a job.

It is not the only information a lender looks at, though. Your income also has an impact on the final decision.

Here are a few tips to maintain and boost your credit score:

• Pay your bills on time. It makes up 35% of your score.
• Keep your accounts open. The longer you have had a credit account, the better your financial picture looks. That’s another 15% of your score. It does take time to build credit history.
• Keep your credit utilization low. Generally, it is best not to use more than 50% of your available credit. This is also a huge component of your score, 30%.
• Have a variety of credit items. Different types of credit give a lender an idea on how you manage debt. Mortgage, credit cards, student loans will make for 10% of your score.
• Limit the number of new credit requests. You should only ask for the credit you actually need. Too many inquiries could prevent you from obtaining credit in the future. This is the last 10% of your score.