When applying for any type of loan, a lender requests a copy of a client’s credit bureau report, which gives them a picture of how well outstanding debts are being paid.
Here are the factors that go into determining a credit score:
- Payment history – This accounts for about 35% of the credit score. Carrying balances from month-to-month and missing payments are two factors. Other factors include the number of missed payments – one in eight to 10 months is not bad, and how long ago the payment was missed. Tip: Pay the minimum by the due date.
- How much is owed – This looks at the total outstanding balance in relationship to the total of all credit limits and accounts for 30% of the credit score. Tip: Pay down debt to at least 30% of the global loan limits.
- Account history – The length of time credit account has been active accounts for 15% of the score. The older the credit, the higher the value.
- Recent inquiries – This accounts for 10% of the score. Too many inquiries can send a message that a client may need money, which has a negative impact on the score. A client ordering his or her own credit report has no impact.
- Type of credit – This accounts for 10% of the credit score. Credit is either revolving as in credit cards or installment as in car loans. Higher scores are given to people with a blend of credit from various sources.
- Collection or bankruptcy – This, of course, has a negative impact on the score. Once discharged from bankruptcy or a consumer proposal, clients can rebuild credit.
Courtesy of Genworth Canada