23 June 2020
The most important component of your credit score looks at whether you can be trusted to repay money that is lent to you. This component of your score considers the following factors:
The second-most important component of your credit score is how much you owe. It looks at the following factors:
Your credit score also takes into account how long you have been using credit. For how many years have you been using credit? How old is your oldest account, and what is the average age of all your accounts?
A long history can be helpful if it doesn’t show late payments and other negative items, but a short history can be fine too, as long as you’ve made your payments on time and don’t owe too much.
Your CTOS Score considers whether you have a mix of different types of credit, such as credit cards, instalment loans and mortgages. It also looks at how many accounts you have in total. Since this is a small component of your score, don’t worry if you don’t have accounts in each of these categories, and don’t open new accounts just to increase your mix of credit types.
The final component in determining your credit score is how many new loan applications you have. It looks at how many new credit facilities you have applied for recently.
If you’ve borrowed several credit facilities recently, the assumption is that you could be a greater credit risk; people tend to open new accounts when they are experiencing cash flow problems or planning to take on lots of new debt.
For example, when you apply for a mortgage, the lender will look at your total existing monthly debt obligations as part of determining how much mortgage you can afford. If you have recently opened several new credit cards, this might indicate that you are planning to make numerous purchases on credit in the near future, meaning that you might not be able to afford the monthly mortgage payment the lender has estimated you are capable of making. Lenders can’t determine what to lend you based on something you might do, but they can use your credit score to gauge how much of a credit risk you might be.