According to an Ipsos survey, over half of all Canadians have never checked their credit score and 7 in 10 don’t know their current score. Another telling statistic is that those people who don’t check their score, 40% would rather not know it. There’s nothing to be embarrassed about if you find yourself in the position of having a bad credit score. There are always ways around it and support you can get in order to make it better for your future. You could look into something like bad credit loans if you want to consider getting a smaller loan in order to improve your credit score. We can all do with a bit of help, no matter the circumstance.
A large part of achieving financial wellness is understanding your credit score. Warren Sumner, Assistant Branch Manager at the Willoughby branch of Envision Financial, a division of First West Credit Union, offers some insights to help provide a better understanding of credit.
Your credit score is calculated using five factors:
Payment history (35%)
Debt utilization ratio (30%)
Credit history (15%)
Credit application frequency (10%)
Credit diversity (10%)
1. What’s your payment history like?
This is the most important factor affecting your credit score. Prospective creditors want to know that you are going to pay them back. Your payment history covers all of your consumer debt like credit cards and loans.
2. How much do you currently owe?
When creditors look at how much you owe, they determine if you can take on more debt. Lenders will also look at your debt utilization ratio: the amount of credit you’re using compared to the amount that’s available to you.
3. How long is your credit history?
Creditors want to see a long established history of managing credit. There’s nothing more frightening to them than somebody walking out of the woods without any credit history. Talk to an Advisor about some effective ways to build credit if you have none.
4. How frequently are you applying for new sources of credit?
Frequently applying for credit is a flag for creditors which signals financial difficulty rather than stability. If you frequently sign up for new credit cards, loans or other forms of credit, lenders may conclude that you’re not able to manage your money.
5. What kind of credit have you used?
The kinds of credit you use can say a lot about how you handle your finances. There are two kinds of credit: revolving and installment. Installment credit is a loan that you pay back regularly and the amount of the loan is set when you are approved. Revolving credit has a credit limit that sets how much you can borrow up to (i.e. credit card), but you can pay it off and spend it again.