Understanding where your credit lies on the credit score range is essential when looking to buy a home in Nanaimo. Lenders and creditors will more than likely use a credit score to determine your likelihood of making payments on time.
Just as a quick refresher, your credit score is a three-digit number that comes from the information in your credit report. This number shows how well you manage credit (your money) and helps determine how risky it would be for a lender to lend you their money.
A credit score is typically calculated by using a formula based on your credit report.
Keep in mind that you will:
- earn more points if you use your credit responsibly
- lose points if you happen to have trouble managing your credit
Also, it's worth it to note your credit score will change over time as your credit report is updated frequently.
Also, your credit score is only one of the many factors that lenders will evaluate when approving you for new credit.
Based on an analysis of 1 million members of a Canadian fintech firm Borrowell, people are getting serious about bettering their credit score since the pandemic. In 2020, the average credit score across Canada increased from 649 in the first quarter ( which is considered below average) to 667 a year later (fair).
What Canadian Credit Ratings Mean
Excellent (Scores 780+)-Individuals with a credit score rate of 780 or over have the opportunity to enjoy the best interest rates on the current market and more than likely, they will be approved for a loan.
Very Good (Scores 779-720)-To be in this range is considered near perfect, and individuals with credit score rate still have the opportunity to get some of the better rates on the market
Good (Scores 719-680)-People in this credit score range will typically have little to no trouble getting approved for newer lines of credit.
Average (Scores 679-620)-While this is a good range, keep in mind this is the average, and individuals within this credit score may be privy to receiving slightly higher interest rates than those with higher scores.
Poor (Scores 619-580)-Credit Scores in this range indicate that the individual is high risk. It may not be easy to obtain loans, and if approved, they will likely be offered a higher interest rates.
Very Poor (Scores 579- 500)-Individuals with credit score rates in this range are very rarely approved for anything, but it's always worth having a conversation with your lender.
Terrible (less than 500)-Individuals whose credit score rates are less than 500 will more than likely not get approved for new credit and should seek credit improvement help.
Factors That Can Affect a Credit Score
It's always good to look into different ways when improving credit, but there are five main factors which can affect calculation credit scores.
If you’re in the market to improve your credit, these are the areas that you should focus on:
- History of Payments (~35%) – This ultimately reflects how frequently you pay your loans or bills and whether you do so on time. As a good rule of thumb, anyone looking to improve their credit scores should always make their payments on time, without fail.
- Debt/ Credit Utilization (~30%) – This is where the amount of outstanding debt an individual has compared to the amount of available credit they have. As an example would be if you were to have a total credit limit of 5,000 CAD and consistently carry a high balance, your credit score has the potential to be negatively affected. To help remedy your credit scores, pay down your debt and make sure to keep your balance lower than 35% of your available credit when possible.
- Credit Length (~15%) – This factor is fairly straightforward -- the longer a credit account/card has been open, the better it is for your credit scores. If you’re considering canceling a credit card, make sure you cancel one of the newer ones and keep the older ones open.
- New Inquiries (~10%) – Every time a potential lender or creditor pulls your credit, your credit score may take a minor and temporary hit. Keep in mind, if you apply for a lot of new credit within a short time frame, there is a chance your credit score may drop a significant amount. It's also worth noting other creditors have the ability to see that you’ve recently applied for a lot of credit which may lead them to consider your potential new account to be a red flag.
- Diversity (~10%) – Having a variety of different types of credit accounts may help improve your credit. What this shows potential creditors and lenders is that that you are a responsible borrower and that you can handle the responsibility which comes with having several different credit accounts.
There is always good news when it comes to credit scores and that you have the opportunity to change it. You have the ability to improve your credit by simply re-evaluating the way you manage your credit products. Keep in mind to always be responsible with the use of your credit cards and loans, over time. See credit scores as a way of empowerment as the ability to change that three-digit-number is literally in your hands.