The Comprehensive Guide To Your Credit File - Budget on a Budget
Your credit rating is imperative. It’s your financial report card and your lifeline to (responsible) debt. In the industry I work in, I see so many people who mismanage their credit, either because of financial hardship or due to lack of knowledge. When you use credit, you are borrowing money which you promise to pay back within a specified amount of time. Your credit report is what prospective lenders see when they look to extend credit to you. Your credit report is provided by consumer reporting agencies called Credit Bureaus. The two largest Credit Bureaus in Canada are Equifax and Transunion, and in the United States, there are three: Equifax, Transunion, and Experian. Your credit score is calculated using an evaluation system, and here is how it breaks down: Payment History – 35% Your payment history is the most important factor in your credit score. Your payment history reflects the payments you make on all of your consumer debts. Creditors report to the Credit Bureaus every time you make a payment on your credit cards, lines of credit, car loan, personal loan, student loan, cell phone (yes it reports), and any other debt you may have. Mortgage payments are not reflected on your credit report, but almost everything else is. So every time you decide you are going to pay your Rogers bill late, guess what? It shows up on your credit file. Utilization – 30% When you apply for credit, a lender will look at how much credit you have available to you, and how much of that available credit you are using. You may think you can handle another monthly payment, but your credit file may say otherwise. This is achieved by a simple calculation we call ATP (ability to pay). Believe it or not, having a bunch of available credit helps your credit score. When you max out all your credit cards and other revolving accounts, you bring your credit score way down. Ideally, you should not carry a balance on your credit cards, but if you must for some reason, never use more than 75% of your available credit. Inquiries – 10% When you apply for credit at multiple lenders in a short amount of time, it can signal financial difficulty, and it looks less than favorable on your credit report. Creditors will fail perspective clients solely based on the fact they have had too many inquiries on their credit file.
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