What is the first thing that comes to your mind when you hear Credit Bureau? Credit Bureau or report is a document that is mostly used by financial institutions for the purpose of determining whether to grant credit to a consumer. The report is also used by individuals themselves to review and identify their credit rating. The credit reports purpose is to outline a financial history trend and also take into considerations such as home ownership and employment history with the intent of creating a score to be used for credit granting purpose. Financial institutions are heavily influenced on the content within the credit report especially the credit score. The credit score is tabulated after it takes in a series of information such as;
- Types of credit in use
- Payment History
- Amounts Owed
- New Credit
- Length of Credit History
Although each of the above categories is assigned a different weighting ratio they all are important. For example the biggest influence on your credit score is the payment history of your credit. The types of credit in use would not skew your score in comparison to payment patterns. So why is the score important? Most financial or credit granting institutions use the score as a quick way in determining if you are credit worthy. The higher the credit score, the more likelihood of obtaining the requested credit. Equifax is the most popular credit report provider in Canada. Leading Edge Credit Union uses their services to produce credit reports when required on our members. Equifax uses a scoring matrix that uses a numeric scheme of 350-850 with 850 being the highest possible credit score. Each financial institution chooses their own level of approvals in which they would grant credit. Some institutions use only the credit score in determining approval while others use additional details. At Leading Edge Credit Union the credit score is combined with a series of information and is not the only source of determining if credit will be granted. In reference to a good score, 650 and above would look very favorable from our organization perspective. We also look at a person's character when determining to grant credit. Many institutions have moved away from looking at how a consumer has paid in the past or their relationship with the individual and focused solely on the credit score. If you apply for a prepaid cell phone for example the score will most likely be the only benchmark for determining if you are granted the phone.
What can you do to increase your score? Raising your score is bit like getting in shape; it takes time and there is no quick fix. The best advice is to manage credit responsibility over time and follow these simple tips;
- Pay your bills on time. Delinquent payments have a major negative impact on your score.
- If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score.
- Keep balances low on credit cards and other "revolving credit". High outstanding debt can lower your score.
- Pay off debt rather than moving it around. The most effective way to improve your score is by bring your debt balance down, not transferring from one credit source to another.
- Don't close unused credit cards as a short-term strategy to increasing your score. Owing the same amount but having fewer open accounts may actually lower your score.
- Don't open a number of new credit cards that you don't need, just to increase your available credit. This approach could backfire and actually lower your score.
- If your new to credit, don't open a lot of new credit in a short time. Manage your credit over time to build your score.
- Don't open new accounts that you don't need. Simply applying for credit for a purchase that you are not intending to purchase will lower your score. Shopping for a car, wait until you selected your car first before applying for the credit to purchase it. We suggest apply for a loan with us at LECU to get your approved amount, and then go shopping. Be careful however as some dealers will put your information through to their lenders creating inquiries which could lower your score. Bottom line, limit your inquiries!
In conclusion, your credit score is a very important part of applying for credit. It is also very important to understand how you can manage your score. If you would like to obtain a copy of your credit report visit http://www.consumer.equifax.ca/home/en_ca