A credit score is a numeric valuation that lenders use, along with your credit report, to evaluate the risk of offering you a loan or providing credit to you. The FICO score is the most commonly used of the credit scores. It is calculated using different pieces of data from your credit report, including:

• payment history: 35%
• amount of debt relative to credit limit (credit utilization): 30%
• length of credit history (the longer the better): 15%
• types of credit in use (having current installment loans and revolving lines like credit cards helps): 10%
• new credit/recent credit applications (a hard inquiry can ding your credit for several months): 10%

Your credit score affects your ability to qualify for different types of credit – such as car loans and mortgages – and the terms you’ll be offered. In general, the higher your credit score, the easier it is to qualify for credit and obtain favorable terms. Because a lot could be riding on your credit score, it pays to keep track of it and to work towards improving it, when necessary. You can get a free credit report from each of the three big credit agencies – Equifax, Experian and TransUnion – but they will charge a fee if you want to see your actual credit score. The good news: You may be able to get your score for free from your bank or credit card issuer; here’s how.

Changing Times

Barclaycard US and First Bankcard (the credit card end of First National Bank of Omaha) were the first to sign on (in 2013) when the program launched, and since then others have joined in, including Citibank, Chase, Discover, Digital Credit Union, the Pentagon Federal Credit Union, U.S. Bank and North Carolina’s State Employees’ Credit Union. Ally Financial began offering free credit scores to auto loan customers in 2015, and Bank of America subsequently made credit scores available to cardholders for free.

Getting Your Score

If your bank or credit card issuer offers free credit scores, you should be able to check your score either online by logging into your account, or by reviewing your monthly statement. If you’re not sure whether your bank provides access to free scores, or if you have trouble finding your score, contact customer service for assistance. There are other resources to see your credit score or credit report for free, as well. If you’re wondering whether you should pay to see your credit score, the answer is probably “no.”

In addition to free credit scores, some banks offer benefits designed to help you understand – and improve – your score. First National Bank, for example, gives you 24/7 online access to your FICO score and shows you which key score factors have affected your number. And Barclaycard US provides your credit score, plus up to two factors that affect it, a historical chart that tracks it and email alerts any time your credit score has changed. 

It’s important to note that not all credit scores are created equal, and the various banks and credit card issuers may provide access to different scores. Soon after the launch of the FICO Score Open Access Program, credit bureau Experian introduced a similar program, which allows banks to share its VantageScore credit score with consumers. 

Today, these two systems operate on the same 300 to 850 point scale, and each uses similar criteria to calculate the scores, but they weigh each item differently. With FICO, for example, your payment history represents 35% of your score; for VantageScore, it accounts for around 40%. The result: The two scores will generally differ, even for the same person, on the same day. That’s not necessarily a bad thing, but it’s something to be aware of so that you can make sure you are comparing apples to apples when tracking your scores.

The Bottom Line

Your credit score affects your ability to obtain credit, and the terms you’ll be offered. Up until recently, the credit score industry was fairly covert, and it was difficult (or expensive) for most people to get their hands on their score. Today, however, a growing number of banks and credit card issuers provide credit scores free of charge, which is hugely valuable for consumers trying to track and improve their credit health. 

There are different ways you can harm your credit history, but there just as many ways to salvage it, too. If you want to know how to rebuild your credit, here are five steps you can start taking.

Step 1: Check Your Credit Report

The first step in rebuilding your credit is determining which areas need improvement, and getting a copy of your credit report is the best way to go about it. Do you have a lot of late or missed payments? Is your debt utilization too high? Or was there something more serious, like a bankruptcy? All of these factors can lower your credit score, and your credit report is where you can see where you went wrong. Once you’ve identified the reason behind your low credit score, you’ll be able in a better position to take action.

It’s also important that you check your credit report for any errors or fraudulent accounts, as these errors can bring your credit score down, too. If you discover an inaccuracy on your credit report, bring it to the attention to the creditor so they can remedy the problem and revise what they are reporting.

Step 2: Make Arrangements to Bring Your Accounts Up To Date and Pay Down Debts

Your payment history is the largest factor affecting your credit score, so if you’ve been behind on your payments – or haven’t been making your payments on time – your credit situation likely won’t improve much unless you get your accounts up to date.

If you’re in a tough spot and you can’t afford to bring your delinquent accounts up to date at once, contact your creditors to see if you can negotiate a payment arrangement that works with your budget. If you and your creditors aren’t able to work out an arrangement, an accredited, non-profit credit counsellor may be able to help you create a plan to bring your accounts up to date, and pay down your debt.

Step 3: Rebuild Credit with a Secured Credit Card

Once you’ve developed a plan to tackle your debts and get your payments up to date, the next step is to build a consistent payment history. An important part of building credit is demonstrating that you can pay back the money you borrowed and prove to creditors that you can responsibly manage debt. One of the best ways to rebuild credit is with a secured credit card.

Step 4: Make At Least the Minimum Payment By the Due Date

As you work towards building your credit history, it’s critical that you make your payments on time, and this goes for non-credit bills as well. A missed utility payment that is way past due, an outstanding cell phone bill, or old parking tickets can get reported to the credit bureaus, so it’s important that you start establishing a reliable payment history by paying at least the minimum payment on all your bills by the due date.& At the very least, you want to avoid missing payments or constantly making late payments.

Step 5: Adopt Good Financial Habits

Developing smart spending and saving habits are crucial to rebuild your credit score, and one of the best ways to do this is to create a budget that accurately reflects how much you earn and how much you spend. With a budget you’ll know how to live within your means, and you’ll be able to manage your money better.

Given a scale between 300 and 900, an ‘average’ credit score might range between 500 to 700. An often-cited ‘magic number’ for credit scores in Canada is 650. Some banks use this as a threshold for whether or not applicants are eligible to be approved for products like unsecured credit cards, while others consider applicants with credit scores on the lower end of the average range.

Individuals who have undergone bankruptcy or a consumer proposal will work hard, using secured credit cards and diligent saving, to reach this level. Someone who typically has good credit might temporarily dip into this level if they are delinquent on bills, make a series of late payments, or run their balance up to the limit of their available credit.

With the wide range of factors affecting credit scores, keeping it in great shape is a challenge. To find your credit score, navigate to TransUnion, Experian, or Equifax and sign up for their free reports. If you have reviewed your score, but find it does not meet the minimum to be considered “fair”, check out the articles here and here to learn how to improve it.

What Can I Do with Fair Credit?

With fair credit, you gain access to a wider range of financial tools that grant more freedom to spend and save. It can take hard work to reach this threshold, and if this is you – congratulations! Credit is an indicator of your personal financial diligence and a fair score gives you the option to take on more responsibility. Whereas those with poor credit may experience more limited access to financing, fair credit can be used to take out a bank loan, open a line of credit, or benefit from cards with more favorable terms.

Recommended Cards for People with Fair Credit

#1 The BMO Preferred Rate Mastercard

Even if your credit score is not quite perfect you can still get an excellent rate on purchases and balance transfers with the BMO Preferred Rate Mastercard. You do need a credit score of at least 650 to apply, but the low interest rate is extremely competitive for a card that is available to those with ‘only’ average credit. The card’s key features are:

• $20 annual fee
• 12.99% interest rate on purchases and cash advances
• 3.99% introductory interest rate on balance transfers for first 9 months
• 12.99%  interest rate on balance transfers after 9 months
• Extended warranty and purchase protection on eligible purchases

#2 The Scotiabank Value Visa

The aptly named Scotia bank Value Visa card isn’t just for those in the upper echelons of creditworthiness. Scotia’s card grants a competitive 11.99% purchase interest rate to those with fair credit and charges a low $29 annual fee as well. With the option to transfer your balance and pay just 0.99% on it for 6 months, there are few cards that offer such a comprehensive toolkit for stemming the nonstop flow of interest. Additionally, cardholders will be eligible to receive a discount of up to 20.00% when renting vehicles at Avis branches in Canada.

#3 The BMO Air Miles Mastercard

Just because your credit score isn’t the highest, doesn’t mean you can’t enjoy the vast travel benefits of the Air Miles program. The BMO Air Miles Master card offers new cardholders 1000 bonus Air Miles. In the meantime, they’ll enjoy the ability to collect 1 Air Mile for every $20 spent. At any of the Air Miles sponsored locations across Canada, the rate doubles. With so many ways to accelerate earnings and no annual fee, it’s ideal for many cardholders—not just those with fair credit. A balance transfer deal charging just 1.99% interest for 9 months is the cherry on top.

Order a copy of your credit report from both Equifax Canada and TransUnion Canada. Each credit bureau may have different information about how you have used credit in the past. Ordering your own credit report has no effect on your credit score.

Equifax Canada refers to your credit report as “credit file disclosure”.

TransUnion Canada refers to your credit report as “consumer disclosure”.

Order by mail or fax

• Make your request in writing using the forms provided by Equifax and TransUnion
• Provide copies of two pieces of acceptable identification, such as a driver’s licence or passport
• You must receive your credit report by mail

Order by telephone

• Call the credit bureau and follow the instructions
  
  • Equifax Canada
    Tel: 1-800-465-7166
    
  • TransUnion Canada
    Tel: 1-800-663-9980 (except Quebec)
    Tel: 1-877-713-3393 (Quebec residents)
• Confirm your identity by answering a series of personal and financial questions
• You may also need to provide your Social Insurance Number and/or a credit card number to confirm your identity
• You must receive your credit report by mail

Get your credit report online

You may pay a fee to order your credit report online if you want to see it right away. TransUnion allows you to order your credit report online once a month for free.

Get your credit score

A lender will use your credit score to determine if they will lend you money and how much interest they will charge you to borrow it. Your credit score is a number calculated from the information in your credit report. It shows the risk you represent to a lender compared to other consumers.

Knowing your credit score before a major purchase, such as a car or a home, may help you to negotiate lower interest rates.

You usually need to pay a fee when you order your credit score online from the two credit bureaus.

Some companies offer to provide your credit score for free. Others may ask you to sign up for a paid service to see your score.

Make sure you do your research before providing a company with your information. Carefully read the terms of use and privacy policy to know how your personal information will be used and stored. For example, find out if your information will be sold to a third party. This could result in you receiving unexpected offers for products and services. Fraudsters may also offer free credit scores in an attempt to get you to share your personal and financial information.

Always check to see if a website is secured before providing any of your personal information. A secured website will start with “https” instead of “http”.

What is credit monitoring

Canada’s credit bureaus, as well as many credit card issuers and financial institutions, offer credit monitoring services. These services provide you with a notification after certain updates to your credit file, such as a credit inquiry.

You could consider using this service if you think you’ve been the victim of fraud or if you have been affected by a data breach. This can help you see if somebody is trying to apply for credit in your name.

You usually need to pay for these services.

How often you should check your credit report

Consider requesting your report from one bureau, then wait six months before you order from the other bureau. By spacing out your requests, you may be able to detect problems sooner.

Your credit score is important because it may influence how much credit a lender will give you as a borrower. People with a lower credit score may be viewed by lenders as being a bigger risk of not paying back the money.

If your credit score is good, it shows a lender that you have the ability to meet your financial obligations if they give you a credit card or a loan. A bad credit score could result in you getting charged extra interest or getting knocked back on a loan altogether.

How much does it cost to check your credit rating?

It is free to check your credit rating with the three main credit reporting agencies: Equifax, Dun&Bradstreet, and Experian.

How much does it cost to check your credit report?

You can get a free copy of your credit report within 10 working days from the main credit reporting agencies: Equifax, Dun&Bradstreet, and Experian. You can obtain a free copy once per year. However, it is probably best to check your credit report more often than this.

If you want to get your credit report faster, you can pay upwards of $60 for a 1-day turnaround in accessing your report.

It is important to know that a free copy of your credit report is available. According to Fiona Guthrie, the Executive Director of Financial Counselling Australia (FCA), credit reporting bodies often make it difficult for customers to know that a free check is an option.

The FCA reported a recent website check revealing that the two largest credit reporting agencies in Australia prominently promote access to their fee-based credit reports, but make it much harder to find information about the free option.

“Under the new Credit Reporting Privacy Code, credit reporting agencies must make sure that the free option is as available and easy to access as the fee-based service,” said Ms Guthrie.

“We look forward to the websites being updated.”

According to the Office of the Australian Information Commissioner, you can get a copy of your credit report for free from a Credit Reporting Body in all of the following circumstances:

• If you have applied for, and been refused credit, within the past 90 days.
• Where your request for access relates to a decision by a CRB or a credit provider to correct information included in your credit report.
• Once a year (not counting the above circumstances).

When should you check your credit score?

According to the section above, you can get a free credit report every year. In addition to checking it every year (or several times a year if necessary), you ideally should check your credit score:

• Once every year or so
• Before applying for a loan, such as a home loan, car loan, or personal loan
• If you think your personal identification details may have been stolen, either physically or online

Canadian credit scores are officially calculated by two major credit bureaus: Equifax and TransUnion.

They use the information in your credit file to calculate your scores. Factors that are used to calculate your scores include your payment history, how much debt you have and how long you’ve been using credit.

Pro Tip: You can view sample credit scores summaries from each bureau (see Equifax here and TransUnion here) to get a sense of what to expect.

What’s in a number?

In Canada, your credit scores generally range from 300 to 900. The higher the score, the better. High scores may indicate that you’re less likely to default on your repayments if you take out a loan.

Below you’ll see a general breakdown of credit score ranges and what each range means in terms of your general ability to qualify for lending or credit requests, such as a loan or mortgage.

Note that the ranges can vary slightly depending on the provider, but these are the credit score ranges you’ll see on Credit Karma. The best way to know where your scores stand is to check your credit report:

● 800 to 900: Congratulations! You have excellent credit. Keep reaching for the stars.

● 720 to 799: You have very good credit! You should expect to have a variety of credit choices to choose from, so continue your healthy financial habits.

● 650 to 719: This is considered good to lenders. You may not qualify for the lowest interest rates available, but keep your credit history strong to help build your credit health.

● 600 to 649: This is fair credit. History of debt repayment will be important to demonstrate your solid sense of financial responsibility.

● 300 to 599: Your credit needs some work. Keep reading for some improvement suggestions below.

How to go from good to great (or bad to good)

To borrow from Leo Tolstoy, all great credit scores are alike, but all bad credit scores are bad in their own way. That is, ideal credit scores are built on a similar set of healthy financial habits, but your scores can be damaged by any number of factors. There are many different issues that can hurt your credit, such as:

● Late or missed payments.
● Too many (or too few) open credit accounts.
● High credit card balances.
● High balances on loans.
● Too many credit applications.

The first step toward improving your credit health is avoiding getting trapped in the highs and lows of managing your credit.

Heather Battison, vice president of TransUnion Canada explains how consistency is key: “The most important factor for building and maintaining your scores is to pay your bills on time and in full each month. This activity demonstrates your ability to responsibly manage credit and can positively impact your credit scores.”

It’s also key to remember that your payment history isn’t just about paying your credit card bill. “It also includes things like your cellphone bill,” says Trevor Gillis, associate vice president of account management at TD Credit Cards.

Gillis says building good credit scores is “based on using your credit card responsibly, which means making at least the required monthly minimum payment (if you can’t pay off the balance in full), making your payments by the payment due date and keeping your credit card utilization low.”

Beware of third-party companies that claim they can quickly boost your scores. According to the Office of Consumer Affairs, only your creditors are able to alter the information on your credit file. When it comes to building good credit, there are no shortcuts.

Here’s the good-to-great news: Improving your credit health isn’t only achievable, but also the steps involved can help you establish an overall healthy financial life. Read our tips for everyday ways you can improve your credit health.

Bottom line

Help keep your credit scores as healthy as possible by reviewing your credit reports regularly to ensure they’re accurate. Making the decision to apply for a loan or credit card is a big deal – don’t let surprise scores get in the way of it.

There are ways to check your credit scores directly from TransUnion and Equifax. However, you’ll either be waiting for snail mail delivery (with the added risk of loss or theft in transit), or paying a fee for one-time online access (or a recurring cost for continued access).

Credit Karma gives you free online access to your credit score and report from TransUnion any time. Score!

Credit scoring is used by lenders, insurers, landlords, employers, and utility companies to evaluate your credit behaviour and assess your creditworthiness.

1. Applying for a loan. Your credit score will be a big factor into the decision of whether you are approved or denied your application for more credit. Your credit score will also affect the interest rate and credit limit offered to you by the new credit grantor – the lower your credit score, the higher the interest rate will be and the lower the credit limit offered  – the reason for this is you are considered more of a credit risk.

2. Applying for a job. A potential employer may ask your permission to check your credit file and based on what they read, they may decide not to hire you due to your poor credit history. Yes, having bad credit could cost you a job!

3. Renting a vehicle. When you sign an application to rent a car, the rental company can check your credit history to determine what their risk may be when they loan you their property. So although you are not applying for credit, the application documents you sign provide your written permission to access your credit information.

4. The same is true when applying for rental housing – the landlord may assess your tenant worthiness and their risk by factoring in your credit rating and score, and they could pass you over for someone with a better credit rating.

What information is used to calculate my credit score, and what factors will lower my score?

If you have tried looking on the consumer reporting agencies’ (CRAs, also know as Credit Bureaus) websites, you have seen they provide VERY little information as to how your credit score is calculated. They believe this information is proprietary and therefore their “secret”. They do, however, provide a list of the main factors which affect your credit score:

1. Payment History
Equifax says: “Pay all of your bills on time. Paying late, or having your account sent to a collection agency has a negative impact on your credit score.”
TransUnion says: “A good record of on-time payments will help boost your credit score.”

2. Delinquencies
Equifax lists: “Serious delinquency; Serious delinquency, and public record or collection field; Time since delinquency is too recent or unknown; Level of delinquency on accounts is too high; Number of accounts with delinquency is too high”
TransUnion lists: “Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections”

3. Balance-to-Limit Ratio
Equifax says: “Try not to run your balances up to your credit limit. Keeping your account balances below 75% of your available credit may also help your score.”
TransUnion says: “Balances above 50 percent of your credit limits will harm your credit. Aim for balances under 30 percent.”

Ok, so avoid maxing out your credit – because if you don’t really need more credit you’ll be able to get it, and if you do really need it then you are more of a risk.(Funny how that works)

4. Recent Inquiries
Equifax says: “Avoid applying for credit unless you have a genuine need for a new account. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can actually repay. A flurry of inquiries will prompt most lenders to ask you why.”
TransUnion says: “Avoid excessive inquiries. When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.” 

There are two types of Credit Bureau file inquires: “hard inquiries” such as an application for new credit, which will lower your score; and “soft inquiries” such as requesting your own credit report, and businesses checking your file for updates to your existing credit accounts for approving credit limit increases, for example – these will not appear on your file or lower your credit score.

Although a “flurry of inquiries” may indicate financial difficulties, it could also be that you are moving to a new city, and will need to apply for a new mortgage, a new electric/gas account, cable, phone and other utilities accounts. These “inquiries” into your account will deduct points from your score, so you may take a rather large hit (points wise) on your credit rating for moving houses.

Also of concern is that inquiries for non-credit purposes (such as utility companies and car rentals), will cause your credit score to drop without adding points for having credit in good standing, as with a credit card that you pay off every month. So be careful to only apply for credit you really need.

5. Length/history of Accounts
Equifax says: A “common negative score factor… [is the] length of time accounts has been established is too short”
TransUnion says: An established credit history makes you a less risky borrower. Think twice before closing old accounts before a loan application.”

Having a longer history on your credit accounts earns you more points, so avoid closing your accounts if you may need them in the future. A good credit history is built over time – sorry, but there is no quick fix for this one.

6. Variety of Credit Accounts
TransUnion says: “A healthy credit profile has a balanced mix of credit accounts and loans.”

Having a mix of credit products (credit card, retail store card, line of credit, car loan, etc) will procure more points on your file than having only one type of credit, such as only credit cards.

7. Too many accounts
Having a lot credit accounts, especially if many of them carry balances, is another warning sign of financial distress, so if the Credit Bureaus think you have too many, they will deduct points.

Order a copy of your credit report from both Equifax Canada and TransUnion Canada. Each credit bureau may have different information about how you have used credit in the past. Ordering your own credit report has no effect on your credit score.

Equifax Canada refers to your credit report as “credit file disclosure”.

TransUnion Canada refers to your credit report as “consumer disclosure”.

Order by mail or fax

• Make your request in writing using the forms provided by Equifax and TransUnion
• Provide copies of two pieces of acceptable identification, such as a driver’s licence or passport
• You must receive your credit report by mail

Order by telephone

• Call the credit bureau and follow the instructions
  
  • Equifax Canada
    Tel: 1-800-465-7166
    
  • TransUnion Canada
    Tel: 1-800-663-9980 (except Quebec)
    Tel: 1-877-713-3393 (Quebec residents)
• Confirm your identity by answering a series of personal and financial questions
• You may also need to provide your Social Insurance Number and/or a credit card number to confirm your identity
• You must receive your credit report by mail

Get your credit report online

You may pay a fee to order your credit report online if you want to see it right away. TransUnion allows you to order your credit report online once a month for free.

Get your credit score

A lender will use your credit score to determine if they will lend you money and how much interest they will charge you to borrow it. Your credit score is a number calculated from the information in your credit report. It shows the risk you represent to a lender compared to other consumers.

Knowing your credit score before a major purchase, such as a car or a home, may help you to negotiate lower interest rates.

You usually need to pay a fee when you order your credit score online from the two credit bureaus.

Some companies offer to provide your credit score for free. Others may ask you to sign up for a paid service to see your score.

Make sure you do your research before providing a company with your information. Carefully read the terms of use and privacy policy to know how your personal information will be used and stored. For example, find out if your information will be sold to a third party. This could result in you receiving unexpected offers for products and services. Fraudsters may also offer free credit scores in an attempt to get you to share your personal and financial information.

Always check to see if a website is secured before providing any of your personal information. A secured website will start with “https” instead of “http”.

What is credit monitoring

Canada’s credit bureaus, as well as many credit card issuers and financial institutions, offer credit monitoring services. These services provide you with a notification after certain updates to your credit file, such as a credit inquiry.

You could consider using this service if you think you’ve been the victim of fraud or if you have been affected by a data breach. This can help you see if somebody is trying to apply for credit in your name.

You usually need to pay for these services.

How do credit scores work in Canada?

In Canada, credit scores range from 900 points (the highest score) down to 300 points. According to TransUnion, a score above 650 will likely qualify you for a standard loan, while a score under 650 will likely bring difficulty in receiving new credit.

What is a good credit score in Canada?

A credit score of 680 or above is generally considered good. 780 or above is considered to be excellent, while 900 is perfect. Most credit scores fall between 620 and 679. Higher scores indicate better credit decisions and can make lenders more confident that you will repay your future debts as agreed.

How to check your credit report in Canada

There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You can get a free copy of your credit report by mail in two to three weeks once you have provided your identification and some basic information. Be sure to check with both bureaus.
If you need a credit report sooner you can get one online from both bureaus for a fee of less than $20. Keep in mind that your number might differ slightly between companies because of their unique algorithms.

What your credit score means

Now that you have your credit report, you need to decipher your score and figure out where you land on the creditworthiness scale. We’ll start at the top of the range and work our way down:

780+: Excellent credit. You can access the best interest rates on the market and will typically be approved for a loan.
779-720: Very good credit. Your credit is near perfect and you will enjoy very good interest rates.
719-680: Good credit. You will have little to no trouble getting approved for financing.
679-620: Average credit. The majority of borrowers fall in this range in Canada. You will have slightly higher interest rates than someone with a higher number.
619-580: Poor credit. If you land in this range, you’re what lenders deem “high risk.” You might have a hard time getting a loan and will have high interest rates.
579-500: Very poor credit. You will rarely be approved for financing,
300-500: Terrible credit. If you have a score of less than 500 you have bad credit and it will be very difficult to get approved for any kind of loan. You should work on improving your credit.
That range probably looks intimidating, especially if you fall on the low end of the scale. But, the good news is that it’s possible to improve your credit score with a little work and some good advice.

How is credit score calculated in Canada?

Your credit score is calculated through six main categories and is representative of how well you manage your credit responsibilities.

FACTORS AFFECTING CREDIT SCORE IN CANADA

There are six main factors that affect the calculation of your credit score. These are the areas that you should focus on if you’re interested in improving your credit score.

1. Payment History: This reflects how frequently you pay your debts or bills on time and it is the biggest thing that affects your credit score. If you want to improve your number, your main priority should be paying your bills on time.
2. Used Credit vs. Available Credit: This is the second largest contributor to your score and it refers to the amount you owe compared to your credit limit. It’s a good idea to avoid running your balance up to your limit, as that can harm your score.
3. Credit History: Because good credit is built over time, how long you’ve had credit plays a role in your score. Lenders want to know that you can handle credit accounts over a period of time.
   
4. Diversity: Lenders also want to know that your can handle a mix of different kinds of credit at once, such as credit cards, loans and mortgages. The more diverse your credit, the higher your score.
5. Public Records: If you’ve claimed bankruptcy in the past or have had prior collection issues, these will be factored into your score.
6. Inquiries: Your credit score takes a small and temporary hit each time a lender accesses your file; however, your score will drop if you apply for a bunch of new credit in a short period of time. This does not apply to pre-approvals or personal credit report requests.

How to improve your credit score

With so many different things affecting your credit score, tackling your credit situation might seem like a daunting task. The good news is that your low score doesn’t have to be looming over you forever because you have the power to improve your credit score. At Birchwood Credit Solutions, we will walk you through your credit history and show you how you can start improving your credit score. Get in touch to set up a meeting or click here to learn more about our bad credit car loans.

Will my FICO^® Scores drop if I apply for new credit?

If your [FICO Scores] change, they probably won’t drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most Credit Scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on your credit scores.

What is an “inquiry”?

When you apply for credit, you authorize those lenders to ask or “inquire” for a copy of your credit report from a credit bureau. When you later check your Credit Report, you may notice that their credit inquiries are listed. You may also see listed there inquiries by businesses that you don’t know. But the only inquiries that count toward your FICO Scores are the ones that result from your applications for new credit.

Does applying for credit affect my FICO Scores?

FICO’s research shows that opening several credit accounts in a short period of time represents greater credit risk. When the information on your credit report indicates that you have been applying for multiple new credit lines in a short period of time (as opposed to rate shopping for a single loan, which is handled differently as discussed below), your FICO Scores can be lower as a result.

How much will credit inquiries affect my score?

The impact from applying for credit will vary from person to person based on their unique credit histories. In general, credit inquiries have a small impact on one’s FICO^®Scores. For most people, one additional credit inquiry will take less than five points off their FICO Scores. For perspective, the full range for FICO Scores is 300-850. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. While inquiries often can play a part in assessing risk, they play a minor part. Much more important factors for your scores are how timely you pay your bills and your overall debt burden as indicated on your credit report.

Does the formula treat all credit inquiries the same?

No. Research has indicated that FICO^® Scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. For these types of loans, FICO Scores ignore inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping. In addition, FICO Scores look on your credit report for rate-shopping inquiries older than 30 days.If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO Scores.

What to know about “rate shopping.”

Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, FICO Scores ignore mortgage, auto, and student loan inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping. In addition, FICO Scores look on your credit report for mortgage, auto, and student loan inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO Scores.