Did you know that your credit score is a very important aspect of your financial health? It is a tool that financial institutes use to measure your default risk. Your credit score can take years to build up, but can be damaged very quickly. As an individual learning how to build and maintain an excellent credit score is critical. A strong credit score can determine when you’re ready to buy a vehicle, purchase a home, or apply for a credit card. However, a poor credit score makes obtaining financing of any type much more difficult and will result in higher interest rates, the possible need for a co-signer, or a larger down payment.
What is a credit score?
The credit score rating is a calculation used to assess your default risk, which simply references how well you pay your bills. The credit score ranges from 300 to 900, with a higher score being better. A score of 900 is practically impossible, but 750+ is excellent, 700 to 749 is good, and 650 to 699 is a fair score. Below 649 is poor and below 550 is bad. You can’t assume that your score is good (or isn’t good). Your credit score can change each month as your credit report is updated.
How is a credit score calculated?
A credit score is derived from a mathematical formula that takes several factors into consideration:
- 35% Payment history
- 30% Outstanding debt compared to your income
- 15% Credit history
- 10% New accounts
- 10% Credit inquires
It is important to check your credit report regularly to ensure accuracy and protect yourself from fraudulent activities. As an individual, it is your responsibility to inform the credit bureau of any accounts that have been paid or closed. To learn more about your credit report, you can request a copy online, in person, by telephone, or by contacting Equifax Canada and Trans Union.