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20 January 2022Six Car Maintenance Services You Should Complete Annually
2 February 2022Understanding Credit Scores and Their Impact on Your Financial Future
Your credit score is an important number that can have a significant impact on your financial future and financial independence. Many Canadians neglect their credit score until they attempt to make a big investment like buying a car, home, or taking out a large loan, but this increases your chance of being seen as a “credit risk” and losing out on big opportunities.
Not only is it important to understand credit scores, but it’s essential that you strive for a higher score and increase the probability of landing a loan for your mortgage, small business, or brand new car! Follow these steps to improve your financial literacy, and increase your credit score!
What is a Credit Score?
A credit score is a three-digit number that represents the likelihood you will pay your bills on time. This score is a picture of you as a credit risk to the lender at the time of your application. The score ranges anywhere from 300 to 850 and fluctuates depending on your repayment history, the amount of debt you have, and your credit history. Higher scores indicate to loaners that you routinely demonstrate responsible credit behavior, which may make potential lenders and creditors more confident when evaluating a request for credit.
Everybody is responsible for their own individual credit score, regardless of marital status or parental authority. The only time your chance of getting approved may be affected by someone else’s score, is if you are co-signing a loan with a business partner or spouse. But regardless, your individual score can not change as a result of your partner’s score, only your chances of receiving a loan may differ.
How Your Score is Calculated
Credit scores are calculated using the information in your credit reports, to determine your reliability as a borrower. There are many different scoring models some of which use data, such as income when calculating credit scores. Credit scores are a major factor when loaners are deciding to offer you a loan, so it’s important that you know your score before heading to the bank or dealership. Knowing your score ahead of time can give you the time you need to come up with a financial plan to improve your score. So how do you calculate your own score?
Canadians are entitled to one free copy of their credit report every 12 months from each of the three nationwide credit reporting companies. You can order a copy of your credit report, online via fax, or by telephone, from bureaus like Equifax Canada and TransUnion Canada. (If you are going directly to a loan agency, they will likely be able to acquire a copy on their own, allowing you to skip this step). Each credit bureau may have different information about how you have used credit in the past, so it may be beneficial to do some research on each company.
This is the typical scoring system process that determines your score:
Component Component Weight
|
Payment history |
35% |
|
How much you owe |
30% |
|
Length of credit history |
15% |
|
Type of credit |
10% |
|
New credit (inquiries) |
10% |
Checking your score annually not only gives you the opportunity to improve your rate but also gives you the ability to analyze your report and correct mistakes. If you believe that the information in your credit report is incorrect, contact the credit reporting agency and your financial institution.
411 Drives works with you to improve your credit
At 411 Drives we recognize that our clients have different credit circumstances and don’t believe that this should have any effect on their ability to buy a new car. Low or insufficient credit does not deter us from helping you find the car of your dreams; if anything it motivates us! Unlike other loaners, we work with our clients to improve their credit scores and refer them to one of our 19 lenders that is best suited to assist them. Having a vast network of lenders, allows us to get our clients the best competitive rates in the market, which is how we were able to attain a 98% approval rate. Our goal is to save you the hassle of having to deal with the lenders while taking care of you every step of the way.
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