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How Credit Score is Calculated in Kitchener

How Credit Score is Calculated in Kitchener

Our credit has a huge influence over many aspects of our lives, financial and otherwise. Yet many of us don’t know that much about how credit score is calculated or what goes into it.


We asked our Kitchener auto loans team to explain how credit score is calculated so you have a much better understanding of how they work.


What is a credit score?


Your credit score is a numerical representation of information stored on your credit report. That report is a summary of how you handle debt and financial obligations.


Your credit score generally ranges from around 300 up to 850-900, with higher being better.


The credit score range looks something like this


  • 300 - 559 – Poor
  • 560 – 659 Fair
  • 660 – 724 Good
  • 725- 759 Very good
  • 760 upwards – Excellent


The two credit bureaus calculate credit scores slightly differently so this is an average.


Most of us start with a score of 300 or so when we’re 18. It will slowly increase as we use finance, borrow and repay money and generally live our lives.


How are credit scores calculated?


Credit scores take all the entries in your credit report and give them a numerical score. Different factors within that report determine how much is added, or taken away from your credit score.


Payment history


Your payment history makes up 35% of your credit score. It’s the most important entry and has the most influence over lending decisions.


Never miss a payment and you get maximum score for the debts you’re paying. Miss a payment and it’s reported, you’ll lose a big chunk from your payment history.


Credit utilization


Credit utilization is generally how much you owe and makes up 30% of your credit score.


It uses mainly credit cards to come up with the score, called revolving credit. For example, if you have a credit card with a $5,000 credit limit and a $500 balance, you’re using 10% of your credit. If you had a balance of $2,500, you would be using 50%.


As long as you’re using less than 35%, the effect on your credit score is positive. If you use more, the effect is generally negative.


Age of credit history


If you have been over 18 for a long time and have been paying off your debt, the length of that history is worth up to 15% on your credit score.


The more history you have, the clearer picture a lender will have of your payment habits and how you handle debt. That’s reflected in this part of your score.


New credit applications


New credit applications make up to 10% of your credit score.


You know when we recommend using auto loan prequalification instead of preapproval when you’re shopping for a loan? This is why. Prequalification uses a soft inquiry which isn’t recorded on your credit report.


Auto loan prequalification can often use a hard inquiry which is recorded. It is here those checks are recorded. Have just a few entries here and it benefits your score. More than a few and it can negatively impact your score.


Credit mix


The final main influence over your credit score is your credit mix that makes up to 10%.


This is a measure of the types of credit you use. The more types of credit you have, the more a lender can tell about your spending habits.


That’s what goes into making up your credit score. We hope it’s a little clearer now!


Contact Unique Chrysler for help, advice and competitive Kitchener car finance and leasing.


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