This three-digit number is surrounded by a lot of misconception and misunderstanding, we can help you better understand how your ‘credit score’ works.

For starters, your credit score is a prediction based on statistics of your credit risk at a specified point in time. The lower your score, the riskier you may appear to a lender, landlord, credit card company or car dealer.

Your Credit Score: Separating Myth From Fact

Credit experts are used to fielding questions about credit scores and correcting misconceptions. According to Patricia White, executive director of Credit Counselling Canada, common myths about credit scores include:

  • Shopping for the best rate can hurt your credit score.
    The reality? There may be features built into credit scores which identify a pattern but there are no penalties for shopping for the best interest rate.
  • Credit cards must be paid off in full.
    The reality? What has a greater impact is having a few credit cards and managing them well. The amount of credit used should be no more than 35 per cent of your overall credit limit.
  • Credit scores treat people unfairly.
    The reality? The scoring system is objective,” White says. “Mathematically-based tools provide an unbiased assessment.
  • Closing a credit account will hurt your score.
    The reality? If you closed a number of ‘old’ accounts this would decrease your available credit and your credit ratio would increase,” White explains. “Closing one account will only have a minimal effect.
  • Making frequent inquiries about your score will negatively affect it.
    It can if you are seeking credit from a number of sources in a short period of time, such as several credit cards. If you are asking for a copy of your report, this will not impact your credit score.

It’s important to be aware of what helps and hurts your score. Your payment history, debts, how much credit you use, the length of your credit history, the number of new credit accounts you take on or inquire about, and the mix of credit types in your name all inform your score. White recommends ordering a copy of your score (from consumer credit reporting agencies Equifax or Transunion) once a year; not only to keep yourself in check, but as a protective measure.

“We recommend that you check your credit report once a year to insure that the report is accurate,” White says. “Mistakes can be made, so ensure that your information is correct.”

Need to improve your score? Paying your bills on time and repaying loans and credit card balances quickly will help improve your score but there’s no instant fix. “Your score is based on past performance so building your scores will take time and diligence on your part,” White says.

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