Credit score, also called as the Beacon score or FICO score is a credit scoring model proposed by Fair Isaac and Company. FICO scores are calculated based on information in your credit report which resides with the three major credit bureaus. The information contained in your file is compared to the information that exists in other consumer credit reports and derives a numerical score called the FICO score.
FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories Payment History, Amount Owed, Length of credit history, new credit and the Types of credit used.
Credit Score Calculation Canada
A FICO score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score.
Your score will range from 300 to 850, with 850 being the best. Most people are happy with a score of 600 or higher.
“One must be aware of credit scoring especially when investing in Canadian Real Estate” says Navtaj Chandhoke, founder of Professional Real Estate Investors Group (PREIG) Canada,”the cost of renting money can be severe if your credit score is low.”
Payment History
Your score considers both positive and negative information in your credit report. Late payments will lower your score. Payment history depends on account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.).
Do not make payments when due, instead make several installments before the due date.This can help to boost your score and obtain higher credit.
In addition it depends on the presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items).
Amounts Owed
It represents the amounts owing on accounts. It’s the proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts) and the proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans).
never borrow 100% of the credit available.Just barely use two third of its limit to keep up your beacon score fairly high.
Length of Credit History
It’s the time since the accounts are opened and also depends on how frequent that specific account is used since it was opened.Do not ever close old accounts unless you have no other choice.Remember old is gold in credit scoring.
New Credit
The new credit is the number of recently opened accounts and the number of recent credit inquiries done about the account. In addition, re-establishment of positive credit history following past payment problems can also be considered as a new credit.
Types of Credit Used
Total number of different types of account; credit cards, retail accounts, installment loans, mortgage, consumer finance accounts etc.
It should also be noted that your FICO score only looks at information in your credit report. However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
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