We’ll be honest: there’s nothing exceptionally enthralling about a credit score. People share them over cocktails (usually if they’re worth bragging about), they come into play when acquiring financing, buying a new automobile or home, setting interest rates, credit limits, etc.; beyond that, credit scores are usually on the backburner of our minds. Furthermore, if you have yet to make any big purchases in your life you probably have no idea what your credit score is – never mind understanding it. Even so, a credit score – ranging between 300 – 900 – deserves your attention. You need to understand what your credit report (the details that dictate your credit score) actually means, and that’s what we’re here to accomplish. Below is a quick rundown.
What are these letters and numbers on my credit report?
We’re not going to run through every letter and number that you may find on your credit report – mainly because the Canadian government has the perfect rundown as to what to expect when you open your report. We’ll give you a few examples to help you understand it, though. For example, if you spot, ‘M4,’ it means your mortgage (M) is between 90-119 days late (4). ‘I0’ means your installment credit (I) is either too recent to rate or has been approved but not yet used (0). ‘R9’ means your revolving credit (usually a credit card) (R) has either been written as a bad debt, sent to collections, or bankruptcy (9). While our examples are not exhaustive, the Canadian government makes it simple to reference what these letter and number combinations can mean for your credit score.
How are credit scores calculated?
Based on the artifacts found in your credit report – it’s as simple as that. There are multiple areas of your report where these calculations are made – from how many credit accounts you have to the age of your credit, how much is owed, types of credit you are using, any new credit, hard inquiries, if you’ve had any late payments, etc. Clearpoint offers a stellar rundown of the impact each of these dimensions have on your credit score. If you find yourself confused or overwhelmed, know this: as long as you pay your credit accounts on time (every time) and ensure that your combined credit balance is under 30% of your combined credit limits, you’re going to have what’s considered a ‘Good’ credit score. If you’re shopping for a mortgage, this is exactly where you want to be!
Is it easy to improve a credit score?
Yes and no. To improve your credit score, you must pay your credit bills on time and ensure you’re paying at least the minimum every month – no exceptions. Moreover, never exceed your credit limit (if you stick with keeping your balance under 30% of your combined limits, this won’t happen). Yet, emergencies happen and sometimes you need to put a considerable amount of money on a credit card. When this happens, create a budget to pay your balance quickly yet comfortably. Paying off a credit balance is key (old credit can lower your score), but you want to do so at a pace that won’t put you into financial difficulties. Last but not least, realize that while your credit score may not be ‘Good’ today, by responsibly using your credit and paying it off monthly, you will build a history of credit lenders will find attractive – and a score you can be proud of!