Credit Scores

Karen Pacheco |

mortgage broker Edmonton AB

What exactly affects a credit score?

We’ve outlined five factors that affect a credit score so you can get a better grasp on it for any clients that may ask you or when it comes time to get approved for a mortgage of your own:

  1. Payment history - Late payments affect your credit score negatively. For a good credit score, always make payments on time – set reminders in your phone if you have to.
  2. Current debt - Banks and lenders will look at your current debt relative to your credit limit. If your balance accounts for 90% of your limit, that’s not good. Depending on the institution, 60% to 70% of your limit is the max balance you should carry. Having a card with a higher limit and a lower balance can help your score.
  3. Credit applications - Whenever you apply for a credit increase or new form of credit, your credit score is negatively impacted because it’s a sign of you needing money.
  4. Types of credit - Having a mix of different types of credit is better than having only one form. For example, making on time payments for your vehicle, phone, mortgage, and credit cards looks better than your only credit being in the form of a credit card.
  5. Sent to collections - If you owe money and you’re not paying it, it’s possible that your debt could be sold to a collection agency. The collection agency then chases you down much more aggressively and your debt is increasing thanks to interest. This torpedoes your credit score, so make sure you’re making all your payments!

I hope this helps you understand credit scores a little bit more!