When it comes to good financial health, a good credit score is absolutely essential. Among other things, a good credit score can help with credit card application and getting the best interest rates possible on some credit products. However, a good credit score is something that takes time to build and establish effectively.

What Is a Credit Score?

A credit score is a three-digit number ranging from 300 to 850 that is based off your credit file. These credit score ranges can vary depending on the model used and the credit bureau pulling the score. Lenders use this score to judge your potential risk and your ability to repay loans. Below are the credit score ranges and where they rate.

  • Very Poor: 300 – 579
  • Fair: 580 – 669
  • Good: 670 – 739
  • Very Good: 740 – 799
  • Excellent: 800 – 850

A credit score is calculated via five core factors:

  • Payment History (35%): Whether you’ve paid past credits on time.
  • Amounts Owed (30%): The total amount of credit and loans you’re using compared to your total credit limit.
  • Length of Credit History (15%): Length of time you’ve had credit.
  • New Credit (10%): How often you apply for and open new accounts.
  • Credit Mix (10%): The variety of credit products you have, such as credit cards or mortgage loans.

How Do You Build A Good Credit Score?

There are a variety of ways to build up a decent credit score, with the two most important being keeping credit balances low and making consistent payments. Your credit score will take into consideration whether you’re making payments on time or late and if you’re carrying a balance across months or paying it off in full. It’s generally recommended to set up autopay for at least the minimum payment.

You should also work to keep your utilization rate low, ideally around 30%. Any higher and your credit score can decrease rapidly due to the perceived greater chance of defaults.

Another good idea is limiting how many credit applications you have; too many makes you look like a greater risk to lenders. This is because each time you apply, your credit score temporarily lowers by five points. Although this goes back up in a few months, too many applications at the same time can add up.

Becoming an authorized user lets you build credit via piggybacking off someone else’s account once you’re added to it. Meanwhile, a secured card can help when you’re starting out; it’s almost identical to a regular card, but you’re required to make a security deposit to receive a line of credit, with the deposit becoming the limit.

Mortgage Makers Inc. has been Edmonton’s best family-run mortgage broker for over 25 years. It’s our goal to provide our clients access to licensed Mortgage Professionals alongside the best mortgage rates and mortgage services. Give us a call at 780-436-0390 or email us at [email protected] and let us know how we can be of service.