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Understanding Credit Score Factors in Canada: What You Need to Know
How to Improve Your Credit Score in Canada: Tips and Tricks
When it comes to your finances, your credit score is one of the most important numbers to keep in mind. In Canada, credit scores range from 300 to 900, and a higher score indicates better creditworthiness. Your credit score is used by lenders and financial institutions to evaluate your creditworthiness and determine whether to approve your loan, credit card, or mortgage application. So, it's crucial to understand what factors can impact your credit score in Canada. Here are the top 5 factors that can affect your credit score:
Payment history
Payment history is the most significant factor affecting your credit score in Canada, accounting for 35% of your score. Late payments, missed payments, and defaults can negatively impact your credit score. Payment history includes all the payments you make towards loans, credit cards, and other debts. If you consistently make on-time payments, it can have a positive effect on your credit score.
Credit utilization
Credit utilization is the percentage of your available credit that you're currently using. This factor accounts for 30% of your credit score in Canada. Using a high percentage of your credit limit can indicate that you're overextended and may struggle to make payments. It's generally recommended to keep your credit utilization below 30% of your available credit limit.
Credit history length
The length of your credit history makes up 15% of your credit score in Canada. A longer credit history shows that you have a track record of managing credit responsibly, which can positively impact your credit score. If you're new to credit, it's essential to start building your credit history as soon as possible by opening a credit card or taking out a small loan.
Types of credit
The types of credit you have, such as credit cards, loans, and mortgages, account for 10% of your credit score in Canada. Having a mix of credit types can show that you can handle different types of debt, which can positively impact your credit score.
New credit inquiries
Whenever you apply for credit, the lender will check your credit report, resulting in a credit inquiry. New credit inquiries make up 10% of your credit score in Canada. Having too many credit inquiries in a short period can indicate that you're seeking credit frequently and can negatively impact your credit score. It's essential to be mindful of how often you apply for credit and to space out your applications as much as possible.
In conclusion
understanding what factors impact your credit score in Canada is crucial for maintaining good creditworthiness. Payment history, credit utilization, credit history length, types of credit, and new credit inquiries are the top factors that can affect your credit score. By managing these factors responsibly, you can maintain a good credit score and access the credit you need.
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