From Rachel Surman @ Borrowell
You probably have an idea of what a credit score is and maybe you’ve even checked it once or twice. But do you know why your credit score matters? Not to worry! We’ve got you covered with the basics of credit scores, why they matter, and what you can do to improve yours.
Credit scores range anywhere from 300-900 – depending on the scoring model. At Borrowell, we provide the Equifax Risk Score (ERS) 2.0 credit score, a popular and legitimate score used by many banks and lenders. Borrowell buys the scores and reports from Equifax and we recommend financial products based on your credit score that you have a high likelihood of being approved for.
Your score is calculated through careful analysis of information in your credit report by the credit bureau, either Equifax or TransUnion. Financial institutions use this information to help make decisions about the services and products they offer you, such as interest rates and insurance premiums.
Many Canadians don’t realize the importance of having a good credit score. But the reality is, it affects so many aspects of your financial life! Having a good credit score just makes life easier. It can help you:
Credit bureaus calculate your credit score by weighing a variety of factors on your credit profile. Here’s how Equifax calculates your credit score:
Some of these carry more weight than others, but all are important to your credit score.
So maybe you’ve already checked your credit score with Borrowell. Your credit score is actually quite easy to understand because essentially, the higher your credit score, the better! Credit score ranges go like this:
Now that you know where you stand in terms of your credit score, there are a few different ways to improve it. Here are a few of the most effective ways of doing just that.
As mentioned above, paying your bills on time makes up a whopping 35% of your credit score! Set up pre-authorized payments on all of your bills, especially the ones that report to the credit bureau. These include mortgages, student loans, auto loans, and credit cards. These can also include your utilities, cell phone, insurance, etc.
When it comes to improving your credit score, watching your credit utilization is definitely underrated. Creditors look at the amount of credit you have available and the amount you’ve used. Keeping the balance on your card low looks good on your credit report for anyone that’s checking out your credit.
A good rule of thumb is to keep your credit utilization below 30%. This means if you have a credit card with a limit of $3,000 – you should keep the balance below $1,000.
Bonus tip: raising your credit limit (while it may seem a little counterintuitive!) can help you keep your utilization low since you’re increasing your available credit. This creates a more favourable credit utilization ratio.
The Borrowell Credit Coach – Canada’s first free AI-powered Credit Coaching tool – provides a free credit check, monitors your credit, analyzes your credit profile, and even sends you tips on what you can do to improve your credit score. If you’re serious about credit improvement, it’s time to meet Molly, you’re new Credit Coach!
Your credit score can be thought of as a general indicator of your overall financial health. Knowing and understanding your credit score is the first step to taking control of your finances and planning for the future.
Borrowell is a partner of PolicyMe. Check your free credit score with Borrowell in 3 minutes or less.