How Your Credit Score Is Calculated and What it Means to You When Buying a Car.

Scores range between 300 and 900, with most Canadians hovering around the 700 mark.
730+ Is Excellent
700-729 Is Good
670-699 Is Just Below Average
585-699 Is Higher Risk
-585 Means You Have Limited Credit History Or No Credit History On Record.
Scores are calculated using the following formula.
Payment history = 35%
Making payments on time has the largest positive effect on this part of your credit score. Most financial institutions and credit card companies will give you 1 late payment grace per year after that being late on a payment by even a day or two could bring your score down.
Bankruptcies, late payments, past due accounts and judgments will all be factors in lowering this part of your score.
Amounts Owed On Accounts or Proportion of Balances to Total Limits = 30%
If you’re currently carrying a balance on your credit cards, lines or credit or any other credit account this is has an impact on this portion of your credit score.
Time Since You Opened Your Existing Credit Accounts = 15%
This is where the phrase time is on your side comes into play. Most responsible people avoid getting credit cards or taking on loans early in their life. Unfortunately this can have a negative effect on you when applying for credit later on. No one likes to go first and banks are no exception. They like to see that someone else has loaned you money or given you credit responsibility before they do. Instead of a pre-paid cell phone, go with a reasonable monthly plan and pay your bill on time. Or get a credit card with a low limit even if you have to put up a deposit ahead of time. This will show the lenders that you can pay your bills.
New Credit = 10%
This part of your score it calculated by looking at any recent applications for credit or recently opened credit accounts. Running to every bank or lending institution to enquire about credit can harm your credit rating. When shopping for a house it’s a good idea shop around but once you’ve decided to go with a lender. Get one pre-approval and stick with it. The same strategy can be used in shopping for a car. Rather that going and getting approved at every dealership or even your own bank you can use a service like www.bestcarloan.ca . They will submit your application once to a number of financial institutions so that you can find the best rate and terms for a car. This application shows as one credit inquiry rather than multiple inquiries preventing you from having a negative effect on your credit while shopping for the best deal.
Types of Credit = 10%
Number and types of credit accounts are looked at in this part of your score. Credit cards, retail accounts, mortgages are examples of different types of credit accounts. It’s a good rule of thumb not to open to many credit accounts. If you have a Visa you most likely won’t need a Sears card, Home Depot card, Canadian Tire card etc… Try to balance the rewards offered when signing up for these types of accounts to the potential impact it may have on your credit score.
Matt Is the Business Manager for Bowman's Auto Sales in St. Catharines Ontario
He can be reached for further questions or comments at sales@bowmanauto.com