What Is A Credit Score & Why Does It Matter?
Tuesday Feb 15th, 2022
A good credit score gives you access to more money at a lower interest rate. In Canada, you need a credit score of 680 or above to qualify for the best mortgage rates, although some mortgage providers will give you a mortgage with a credit score of 600-680 but at a higher interest rate.
What is a credit score?
Your credit score is an expression of your credit report which is based on your credit history. It suggests to a lender the risk you represent compared to other consumers. A credit score is a three-digit number, on a scale from 300 - 900 that expresses your credit information at one point in time. The higher the score the lower the perceived risk to the lender.
Your credit history is a record of the ability you’ve demonstrated to repay debts and your responsibility in repaying them. It contains facts gathered from financial institutions, retailers, and lenders about how you have handled credit in the last seven years. Factors include your repayment history, how long your credit history is, the different types of loans you have, and your total existing debt. This information is then used to create your credit report. Your credit report is one of the main tools lenders use when deciding whether or not to give your credit.
Why does your credit score matter?
Lenders use your credit score as one of the tools to decide whether or not they will offer you credit and what rate of interest they will charge. The higher the score the better the credit. It can impact everything from the initial deposit on a phone to the interest rate you’re charged on your credit cards & your car insurance rates. In Canada, you need a credit score of 680 or above to qualify for the best mortgage rates, although some mortgage providers will give you a mortgage with a credit score of 600-680 but at a higher interest rate.
To find out what your credit score is, go to Ordering your credit report and score for all the details.
How do I improve my credit score?
One: Pay your bills on time. Even one late payment of a credit card, loan or utility can affect your credit score. The good news is that it only takes about six months of on-time payments to make a positive difference in your score.
Two: Maintain a low credit utilization rate.
What is a credit utilization rate: It’s the money you owe compared to the money you have access to borrow. The lower that is, the better.
How do you make that happen?
➡️If you don’t have a credit card, apply for one & pay it off every month. Start with just one though. Too many inquiries into your credit can negatively affect your credit score.
➡️If you already have cards, inquire about a credit increase.
➡️Don’t close any existing credit cards or accounts, that will leave you with
access to less credit with the same amount of debt.
➡️If you can’t pay off the full balance of your credit cards, make sure you pay at least 30% of it and do it on time to maintain a good credit score.
When it comes to getting a mortgage, the higher your credit score, the better. A good credit score will ensure that you actually get approved for the mortgage, and get a favourable interest rate.