What is a credit score?

A credit rating (also called a score or score) is basically a number that tells lenders about your creditworthiness, or how likely you are to repay a loan based on your credit history. This figure is calculated by credit rating agencies, based on information contained in your credit report.  

A credit score can vary between 300 and 900, which is the perfect score. Generally, a score of 760 and above is considered excellent. A score between 700 and 759 is also very good. 

A credit score below 560 is considered low. The better your credit score, the better your chances that a financial institution will grant you what you want on favorable terms.  

TransUnion, Equifax, and Experian

In the USA, TransUnion, Equifax, and Experian are the three agencies that assess your credit. They create credit reports and scores for American consumers, based on information provided to them by creditors. These agencies then sell your score to financial institutions, lenders and merchants, to help them make decisions when doing business with you.

We often hear about the Beacon rating, which is actually the name of the Equifax credit score. According to legend, the word "Beacon" comes from beacon lights, those lights on planes that flash to signal their position and prevent collisions. The name of the rating may therefore vary between credit bureaus, but it is generally the same mathematical algorithm that is used.

Factors that can influence your credit score

To understand how your credit score works and how to improve it, it is important to know what elements are taken into account to evaluate a credit file. 

1. Payment history (35%). Any delay of thirty days or more will be noted in your file and will affect your score. The longer the delays, the greater the damage will be. 

2. Balance due against credit limit (30%). The average of the amounts due in each of your accounts influences your score. An average greater than 50% of the authorized credit negatively affects your score, even if you pay the total balance at the end of the month. The ideal is to stay at 35% or less of the authorized limit.

3. Age of your accounts (15%). If your accounts have been around for a long time, your creditors can more easily assess your repayment habits. Therefore, the longer the credit history, the better your score. 

4. New credit applications (10%). Each time a lender checks your credit file to grant you a loan or issue you a credit card, a note is entered in your file. 

5. Number of creditors and variety (10%). Creditors believe that the more creditors you have, the more you increase your risk of indebtedness. 

Credit score myths 

The credit rating drags its share of received ideas. It is therefore important to clarify certain points. 

Each person has only one credit score

False. As explained earlier, there are two credit reporting agencies in the USA: Equifax and TransUnion. These agencies do not necessarily obtain the same information from your creditors. Therefore, they may not have the exact same credit information about you, nor may they use the exact same software to calculate credit scores. So you don't have just one credit score, and it can be different from one agency to another. 

You can get your credit score for free once a year

False. On the other hand, you can request a free credit report each year from the reporting agencies. To know your credit score, the subscription is $19.95 at Equifax and TransUnion. However, the free report is more than enough to check that there are no anomalies or errors in your file.

If you still want to check your credit rating, but are reluctant to pay, some organizations, such as Credit Karma and Borrowell, offer you alternatives for free access.

Note that the Desjardins, Royal Bank and CIBC banks also offer it free of charge.

Also, every time you apply for a loan or open a new bank account, the banker asks for your permission to check your credit. At that time, you can ask him what your credit score is. 

Having a good job or earning money boosts your credit score

False. You may be rich and famous, but it doesn't matter. Your occupation and income are not part of the credit scoring formula. Certainly, it is very important for lenders to have a stable job and a good income, but it has nothing to do with your credit report or your credit score. 

Spouses have the same credit score

False. If a police officer pulls you over for speeding, can you put the ticket on your spouse's driving record? No, because a folder cannot be shared. The same goes for your credit report. On the other hand, if the debt is joint, the mention of late payment appears on both credit reports.

If you and your spouse have joint debts, then it is quite possible that your credit scores will be similar. However, all the debts of the last seven years would have to be common for your credit scores to be identical.

By the way, a divorce dissolves a marriage contract, not a common loan agreement. If you were considering divorce for the sole purpose of freeing yourself from your debts, you will have to consider another solution, such as personal bankruptcy or a consumer proposal. 

Personal bankruptcy permanently ruins your credit

False. If you go bankrupt, your credit report will generally be blemished for seven years. During this period, the "R9" mark in your credit report will have a negative impact and make it difficult to obtain credit. However, it is possible to restore your credit rating quickly through good spending habits, and after seven years, there are very few traces left in your file. In fact, you don't have to wait seven years to rebuild your credit. Indeed, as soon as you are released from your bankruptcy, you can apply on certain credit cards to rebuild your credit. The Milestone® Gold Mastercard® is an unsecured credit card that’s designed for people who have little or no credit history and who have some credit negatives. If you’re careful about how much you charge and make sure to pay your bills on time and in full, you could use it to build your credit. But here are a few things you should know before you MilestoneApply.com. However, The Indigo® Platinum Mastercard® can help you build credit. It doesn’t require a security deposit, unlike secured credit cards. However, there are several features to watch out for before you decide if it’s right for you IndigoApply.com. Another option, the Total Visa® Credit Card, which is offered by the Bank of Missouri, offers perks that may be helpful for anyone looking to build or improve their credit. This card can help you achieve just that, apply now PreApprovedTotal.com and begin to build your credit.

How to increase your credit score

The benefits of a good credit score are numerous. This allows you to obtain better interest rates on your loans also check MyInstantOffer.com, to borrow larger sums, and even to score points as a job seeker. If your credit score is lower than you want, there are different ways to improve it.

1. Pay your bills on time

Late payments can really lower your credit rating. It is therefore imperative to pay your bills each month on the due date. Feel free to set up automatic payments so you never forget. 

2. Reduce your use of credit

The credit utilization ratio is another important number to consider. For example, if your used credit is $2,000 per month and your total credit limit for all of your cards is $10,000; your utilization rate is 20%. 

As a general rule, it is recommended to have a credit utilization ratio equal to or less than 30%. Increasing your credit limit or becoming an authorized user on a loved one's credit card can be interesting tips for reaching this rate more easily. 

3. Keep your unused credit cards

As long as they don't cost you anything in annual fees, don't close your unused credit cards. Closing an account may increase your credit utilization rate.

4. Limit credit inquiries as much as possible

Make sure your credit report is not subject to regular investigations. Small credit checks, such as when you or a landlord reviews your file, do not affect your credit score. In contrast, extensive credit checks, such as those that occur when you want to increase your credit limit or apply for a credit product or loan, impact your credit rating. 

5. Correct incorrect information and update your file

Take advantage of your free annual copy to check your credit file information. In general, negative information is kept for six years in your credit file. Make sure they are removed, if possible. In addition, consulting your file will allow you to detect open lines of credit that should not exist (which could indicate fraud).

Here are the forms to complete and submit to submit your credit history report request: Equifax and TransUnion.

6. Don't be afraid of a fresh start

“Destroy to rebuild better”. This also applies to your credit score. Going bankrupt is of course not something desirable and it is important to think carefully before making such a decision. However, if you opt for this drastic measure, be aware that with good spending habits, a credit score can be restored. Secured credit cards can also be a very good solution to help you restore your creditworthiness. 

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