Factors that affect your Credit Reports

Filed in Credit Reports by on December 13, 2012 0 Comments

As Canadians, we all know the importance of credit reports. Our credit reports contain detailed information about our financial transactions and history. As part of our credit report, Credit Bureaus of Canada also score us based on our financial history. They factor in many variables and use industry metrics to come up with a credit score.

For Canada, this credit score is a 3 digit number that ranges from 300 to 900. The higher your score, the better. Canadian banks and lenders like to do business with individuals who have higher credit scores because they are viewed as less of a risk.

Credit reports have an “R” rating which is assigned by lenders based on your payment history, and it can range from 1 through 9. An R1 rating is the best, meaning you pay your debts on time and an R9 is the worst.

Factors that influence your credit score include:

Payment history

Do you pay your bills on time. Within the 30 days? Have you made late payments of 30, 60 or 90 days late? Have you completely missed a payment? One of the single most important factor that affects your credit rating is how good you are at paying your bills on time. Late payments will negatively affect your credit score and will stay on the credit report for a long time.

The amount of debt you owe

How much money do you currently owe on your credit cards? How much money do you owe on your car loan? What is the remaining balance on your mortgage? Canadians will have a better credit score if their debt level is lower. A person with high debt levels is risky to lenders because they are worried that you won’t be able to pay down your debts.

Credit usage

Have you maxed out all your credit cards? Have you maxed out all of your lines of credit? do you owe very little on your credit card? Generally, it is better to have your credit card debt evenly distributed among your cards. Having 1 credit card maxed out, and the other with a zero balance will hurt your credit rating.

Credit experience

How long have you had your credit card? Do you have several credit cards which you have for more than 5 years? do you have multiple cards which you only open a year ago? Having a lengthy credit history will make it easier for lenders to see that you have been managing your financials for a long time thus making it easier to trust you with a loan. A short credit history usually makes it difficult for lenders to trust you.

New credit Applications

Have you been applying for new loans or credit cards? how often? Are you still being able to get new credit or loans? As Canadian lenders review your credit report, it helps that to see that you are still able to get credit. However, your credit score will lower if you have been applying for many loans in a short period of time. It may indicate that you are desperate for credit.

Types of credit established

What kid of credit do you have? is it all credit cards? are they all loans for mortgages or cars? Usually a mix of types of credit established will help to improve your credit rating and report.

About the Author ()

Pat Drummond is the author of Credit Reports Canada and considered by many to be one of the leading experts on productivity and simplicity in relation to financial planning. He started this online credit score & reporting site to chronicle and share what he’s learned in over 20 years of counseling families and individuals on debt management, obtaining loans and improving credit scores.

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