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The Five Factors of Credit Score Excellence

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factors of credit scoreKnow what Canadians believe is the most important of factors for credit score health? They believe that simply paying their monthly payment on time is all they need to keep their score level.

It does make sense given that we’ve been told since we were young to always pay our debts on time. However there actually five lesser-known factors for credit score health you need to be aware of.

By the time you’re done, you’ll probably be tempted to request your credit history, because you likely weren’t aware that you were going against these largely unspoken rules.

Here we go…

The Five Factors For Credit Score Perfection

Payment history

Okay, we’ve already covered that most people know this one, but it does need to be said that you really can’t miss one payment, even by a couple of days.

Of the factors for credit score that matter most, this one is it, largely because credit card companies are very quick to report late payments and are not too forgiving or understanding.

Paying your credit card payments on time is also the top key to qualifying for loans from other companies.

See, there is one factor you’ll see below that’s one of the no-nos on our list, however, if you have an impeccable payment history, lenders will always be ready and willing to talk.

Debt-to-credit limit ratio

This is the no-no we were talking about in the payment history. It is true that if you have an impeccable payment history, some lenders will gladly overlook a maxed-out credit card.

However, this when it comes to the factors for credit score health that generate the most bias, it’s this one.

Some lenders believe that if you perpetually carry a maximized debt (even if you make all your minimum payments on time), you’re not concerned enough with debt repayment.

They can only think of the risks involved with their principal should you find yourself in any kind of situation that would prevent you from making those minimum payments.

This is why most financial experts insist that you remain 70% below your credit limit. Make that your new rule – owe more than ONE THIRD of your credit limit.

Length of credit history

In some instances, this is one that you can’t always control. Some lenders are iffy about lending to people with no credit history, so that creates a type of catch 22 for new borrowers.

Despite your old-school grandparents warning you about the pratfalls of taking on borrowed cash, you never know when you might need to eventually take on a loan and having a credit history to work from is the key.

We’ve seen it many times before – people as old as their thirties with no credit history coming for a loan. They spent most of their adult lives covering everything with cash (which is not a bad thing).

The trouble is when they finally encounter a situation where their source of cash or reserve of cash can’t cover.

This could be the cost of a house (the average Canadian simply doesn’t earn enough to finance a $500,000 house with) or they could have suffered an accident that now prevents them from being able to earn money.

Of all the factors for credit score, your length of access to credit should be seen as a form of insurance against what the future may bring.

If you’re accustomed to paying for everything with cash, you’ll have no problems managing a credit card once you get your first one.

New Credit

Think of this one as a storm warning to some lenders.

Once again, even if you have an excellent payment history, if a potential lender takes a look at your credit history and sees that you recently applied (and got) several new sources of credit it can look like trouble.

Trust (or lack of it) is one of the most crucial factors for credit score integrity and someone racking up a huge sum of credit that could potentially turn into a massive debt your existing finances can’t cover raises a red flag.

Even if you aren’t spending a dime – some lenders see it as a potential time bomb.

Tip: if you do decide that you want to take on new sources of credit, be very selective and do not make several applications at once.

Type of credit

Of the factors for credit score health, this is the factor that matters least, but that’s not to say it doesn’t matter at all. What this factor reveals is how many sources of credit you have and from where they come from.

If possible, do consider repaying the outstanding amount on a couple of sources and closing them out, as this ties into the previous factor.

And there you have it – these factors for credit score stability are what every single potential lender uses to determine whether or not to loan you money in the future.

Bottom line: do your best to limit your credit sources and keep your balances as low as possible and you’ll be enjoying a nice healthy credit score.


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