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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.
Since both Equifax and Trans Union deal with millions of pieces of information on a monthly basis, sometimes mistakes can happen, which can result in false credit scores. In most cases, consumers are not aware of the negative information in their reports. Consumers can address errors on their credit report by calling the creditor in question or writing to the credit-reporting bureau.
 
 

Courtesy of Genworth Canada

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