Payment History as a Factor in a Good Credit Score

Payment History as a Factor in a Good Credit Score

It’s all well and good to be constantly reminded of how to maintain an enviable financial situation, but remember that if you make your payments regularly and before the date set by your creditors, you always score points with the credit agencies.

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Pay Your Bills on Time, Have a Good Credit Rating!

There is a very close relationship between paying bills on time and getting good points from your financial institution and credit agencies. In fact, it’s best to pay your bills in full at the end of each month. However, if your situation does not allow it, sending the minimum payment required on credit card balances, for example, is enough to earn you points at Equifax and TransUnion.

Actually, it’s quite simple: the more you miss or make late payments, the lower your credit score. Another reason is due to a little thing called “your credit usage rate”. This basically refers to how much of your available credit you use. Therefore, if you have a credit card to the max, you have absolutely no credit available, which is a bad sign. However, if you don’t want to have 100% of your available credit, this shows that you are not using the credit you have. Instead, try to use about 30% (or less) of your available credit and pay it off in full each month. This will let lenders know that you can use credit responsibly without losing control.

However, be aware that your credit score takes into account much more than your credit card payments. In order to help you fully understand and obtain your credit score, it is important to know what a credit score is and a few other basics.

Quickly, a credit score is essentially a summary of all the different information contained in your credit report. Your credit report is essentially a continuous record of how you have managed your credit over time. Instead of providing you with a ton of different information and data, all this information is calculated and combined into one easy-to-understand number. Lenders use your credit score to make a quick and unbiased decision about whether or not to extend credit. Scores can range from 300 to 900, but the average score is about 700 for most Canadians. In fact, this is the score that will get you a line of credit and qualify you for a mortgage (as of July 1, 2020, a score of 680 will be required instead of 600).

All in all, keep in mind that one of the most important factors in your credit score is your payment history, both for your credit cards and for other credit products. In other words, make sure you always make your payments by the due date; avoid missing or being late repeatedly. A few changes here and there probably won’t make a big difference, but if late payments or being late becomes a habit, your credit score will certainly suffer and will be recorded accordingly.

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