Want to Understand and Improve Your Credit Score?
Posted by Becky on 21 May 2008 | Tagged as: Programs, Quinte, Trish Belford, mortgage, real estate, tips
Your credit score, also referred to as a “FICO score”, is a mathematical formulae created by Fair, Issac and Company.
Your credit score is used by most companies to decide if you the applicant are a good credit risk or not. Equifax and Trans Union will calculate the numbers from your credit report and generate a number between 300 and 900.
A low score indicates a bad risk. A score of 700 or more puts you in the lenders’ good books.
HOW SCORES ARE CALCULATED
Payment History – Bankruptcies, late payments, past due accounts and wage attachments, collections, judgements
Weight – 35%
Amounts Owed – Amount owed on accounts, proportions of balance to total credit limit
Weight – 30%
Length of Credit History – Time since accounts opened, time since account activity
Weight – 15%
New Number – Number of recent credit inquiries, number of recently opened accounts
Weight – 10%
Types of Credit – Number of various types of accounts (credit cards, retail cards, mortgage)
Weight – 10%
How You Can Improve Their Credit Score
- Order a copy of the credit report, review it carefully and correct any significant errors.
- Pay bills on time.
- If there is a questionable credit history, you could open a few new accounts and use them responsibly, paying them off on time.
- Avoid opening accounts without intention of using them. Having five or six of the same credit card type (e.g., Visa), is not favourable.
- Having a credit card or instalment loan can help boost a credit score, as long as the balance is not too high.
- Keep balances low in relation to available credit. If the credit limit is $10,000, keeping your balance below $2,500 (or 25 per cent of the limit) will improve your score. Balances of more than $7,500 (or 75 per cent of the limit) will decrease your score. Going over the limit has an even more negative effect.
- Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (i.e., “balance transfer”) and closing an old account can hurt the score.
Source: http://www.thehouseteam.ca/Want-To-Improve-Credit.html
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