Six Things You Didn’t Know Could Be Hurting Your Credit Rating
A Credit Rating or a Credit Score is an essential score that influences the daily lifestyle of every Canadian.
A credit rating will not necessarily be higher if you have paid your bills on time.
There are many factors other than the timing of bills that help evaluate the credit score or rating by the credit bureau.
Certain factors hinder the growth of your credit rating, and one must acknowledge them so that one can take necessary precautions to help maintain and increase the credit score.
A credit score also gets overshadowed for the fact that they are only useful at the time of mortgage or loan hunting.
Most people live under the bridge thinking that timing their bills is the only factor that increases their credit rating and usually denies any other.
We shall take a peek at six factors that are important, and will hinder your credit score if not taken under consideration.
Factors that Affect Credit Rating
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There are four more factors other than credit history that affect credit rating.
| Factors | Percentage it affects (%) |
| 1. Payment History | 35% |
| 2. Credit Utilization | 30% |
| 3. Number of credit inquiries on your report | 10% |
| 4. Length of credit history | 15% |
| 5. Credit variety and types you own | 10% |
Percentage table
A credit score has five categories:
| Range of Credit Score | Category |
| Credit Score>800 | Excellent |
| Credit Score from 720 to 799 | Very Good |
| Credit Score from 650 to 719 | Good |
| Credit Score from 600 to 649 | Fair |
| Credit Score from 300 to 599 | Poor |
The higher category you fall under, the lesser interest rate should prevail for any loan or mortgage.
Falling under the poor category will reflect your poor financial decisions, and you will appear less trustworthy to the financial institution or a loan shark that will give you the loan.
Signs Your Credit Score is Declining
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1. Squandering your total available credit
The most integral factor after your payment history that affects your credit score is credit utilization.
Credit utilization is the amount of credit you currently have for your daily usage.
- Credit utilization affects the credit score by up to 30%.
- Limiting your credit utilization and not letting your credit cards or line of credit close to the maximum usage point.
- It will reflect on our payment history, and lenders will not give you any offer as you don’t seem trustworthy to them.
You should find a fix on how to pay any remaining balances and must cut any expense that hampers your savings. This additional cash can be used to set up an automatic payment so that it pays a premium on your loan and not spent on your wants.
Minimizing the use of the available credit reflects that you are financially stable and know how to manage your expenses well.
It will ultimately help you get a low-interest mortgage or any loan so you pay a low interest every month, and save the remaining cash and use it wisely.
2. Longer Credit History
The most common mistake people make that hinders your credit score growth is not noticing the fact that closing an old account or credit card that you don’t use shortens your credit history.
- Closing an old account or credit card abolishes your old payment history and will only have the history from the point where you bought the new credit card or opened a new account.
- This comes down to the fact that lenders and financial institutions will trace your history, and if you have a long one, they will find you more trustworthy and give you a low interest rate loan or mortgage.
This credit history has a 15% affecting rate on your credit rating.
Shortening this history by closing an old account or credit card can damage your credit rating.
3. Minimizing the use of credit cards but not avoiding it altogether
A credit card can become another source of debt trap if not used properly. There are some people who choose to not participate in using a credit card and it often backfires.
It affects people that are trying to rent an apartment for the first time or any such thing badly.
You can use a credit card for automated payments for small things such as any subscription or so on.
4. Over usage of applications in a short span
If your credit inquiries shoot up in a short span of time, it can affect your score by up to 10%.
If you are applying for multiple loans, it reflects to the credit bureau that you are in a financially stressful situation.
You can minimize applying for several loans or a new card unless it’s a necessity.
5. Lack of multiple types of credits
The remaining 10% factor that affects the credit score is the types of credits you own.
If you have only credit cards as a line of credit you should add some more because diversification can be good for your credit rating.
6. Credit Card of Tier 1 Banks
Having a credit card from one of Canada’s big six will help you more than having a credit card from a local union.
Ensuring that you have a credit card in one of the banks will help you increase your credit score and raise it faster.
It is important to keep check on all the above mentioned signs to avoid hurting your credit score, as the credit score makes it more likely for you to get a loan or avail any bank policies int the future easily.
