What Is A Credit Report?

A credit report is a summary of how you pay off your financial responsibilities. A lender uses your credit report to verify your information, see your financial borrowing history, and whether you have repaid your loans in a timely manner. The information in your credit report is used to determine your credit score.

What Is A Credit Score?

Based on specific information in your credit report, credit companies determine your credit score. Your credit score is a number that helps lenders determine if you are a responsible borrower. Your credit score can range between a low of 300 and a high of 850 or 900 depending on which credit company is calculating the score.

Let’s say your credit score is 650. This means that 650 people out of 850 (or 900) are likely to repay their debt. The higher the number, the better as it shows better odds that the lender will get their money back.

Your credit score is made up of five key factors:

  1. 35% of your credit score is determined by your payment history. Every time you make a payment on your credit cards, student loans, personal loans, car loans, etc. the creditor reports that. Payment information is reported separately for each account you have and any missed payments are more impactful the more recent they are. Mortgages are not part of your credit score.
  2. How much you owe overall impacts 30% of your credit score. Lenders really care about how much you currently owe as this will determine if you can manage any more payments on your current budget. If you consistently use more than 75% of your credit limit, your score will be impacted negatively.
  3. The length of your credit history makes up 15% of your credit score. The longer you have had credit available to you the more detailed your credit utilization will be. Time is a very important factor to lenders trying to determine how responsible you can be with credit.
  4. The number of times you have applied for credit impacts 10% of your score. If you are frequently applying for new lines of credit, this can signal hard times to lenders. “Shopping for credit,” as it is called in the industry, does not reflect favourably to creditors.
  5. The different types of credit you have on your credit report makes up 10% of your credit score. It’s easier to get into trouble with revolving credit (like credit cards) than with an instalment loan, for example, where you make payments for a set number of months or years until the loan is paid in full. Even though credit diversity makes up 10% of your credit score, it is the least significant factor for a lender unless you don’t have enough other information on your credit report.