Uncovering the factors that impact your credit

How does credit really work?

We use credit all the time, and yet many of us are still unsure exactly how it works, how our scores are determined, or how good or bad credit can affect the many aspects of our financial lives.

In laymen’s terms, your credit score is a three-digit number that is determined by your ability (or inability) to borrow and pay back money to a lender, such as a bank, credit card company, or business.

Why does it matter? Your credit score determines the likelihood of you paying back, or not paying back, any future loans granted to you. Lenders look at this score to determine your level of risk, and if your credit score is bad (low), will be unwilling to allow you to borrow in the future. However, if your credit score is high, and therefore “good”, you are more likely to receive lending perks such as deals, better interest rates, etc. when you take out a loan for a large purchase (house, car, etc.) or apply for a new credit card.

What Is A Good Credit Score?

Credit scores typically fall between 300 and 900, with most scores falling between 600 and 750. A score above 740 is likely to give you the best interest rates, whereas a score below 580 can prohibit you from borrowing any money at all. However, all lenders have different perspectives of what they perceive as good credit.

What Is Credit Based On?

While most people assume credit is based solely on paying loan payments on time, there are many other factors that may be taking a toll on your score. Here’s how it all breaks down:

• 35% the record of timely payment on other loans.
• 30% the amount of outstanding debt.
• 15% the length of credit history.
• 10% the number and types of accounts opened recently.
• 10% the mix of credit accounts, credit cards, department stores, finance companies, bank loans, etc.

Credit Inquiries

Credit inquiries are performed in two different ways – soft and hard inquiries.

Soft inquires can be performed by you (the borrower), by businesses offering new credit cards to you, or by the businesses you already have credit cards with. These are simple inquiries into your account to verify and ‘check-in’ that your finances are in order.

Hard inquiries are performed by potential lenders who review your score to determine if they would like to lend you a substantial loan. These checks are typically performed with your authorization, as they can lower your credit score by a few points each time. However, as time passes, this damage can lessen and even disappear, (should you maintain great credit).

When Will My Credit Be Investigated?

Your credit score will be investigated when you are applying for a job or promotion, are applying for insurance products such as home or life insurance, are purchasing a cell phone, and in other situations where you may be responsible for borrowed money. Lenders must conduct credit inquiries to ensure that you are in a financial position that will allow for the eventual repayment of your loan. While this may seem intrusive, this process is conducted with your best interest in mind.

How Do You Maintain A Great Credit Score?

Maintaining a great credit score comes down to having credit accessible but not needing it! However, if you do need it, only use borrowed money that you know you’ll be able to pay off on time. Making your loan payment each month ensures that your credit score doesn’t begin down a slippery slope – where your debt continues to pile up and become a major stressor on both you and your family.

How The Mortgage Station Can Help

At The Mortgage Station, our team is here to listen to your specific needs and offer a solution that best fits your situation and lifestyle. Our partnership with you includes one on one credit counselling, access to FREE regular education seminars, and more:

• Putting you first, we pull credit once and shop over 40+ lenders.
• We offer a FREE credit review that will identify if any issues will impact lender expectations, as well as offer tips to keep score trending in a positive direction.
• You’ll have access to products that will assist in building credit, such as loans and secured and unsecured credit cards.
• You’ll be advised on bill paying when you have “more month than money”.
• We’ll make sure you understand the “rules of credit” and we’ll provide tips on how to implement them.

Ready to get started? Speak to an agent today 1.877.512.0007.