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The 5 Biggest Factors That Affect Your Credit Score

Having a good credit rating or credit score is essential for planning many of life’s big milestones, like buying your first home, getting a loan to start a business or any other project that requires financing. But how are credit scores determined? What affects credit scores positively or negatively?

Here are the main elements that affect your credit score, in a nutshell.

1. Paying all your bills on time 

Payment history is arguably the most important part of credit scoring. Even one missed payment on your mortgage, vehicle, your electric bill, cell phone bill, etc., can have a negative impact on your rating.   Being able to meet your financial obligations is one of the key behaviours that lenders and creditors like to see.

2. The amount of debt compared to your available credit

It’s not just the total amount of your debt that interests creditors, but the ratio of use of your available credit. For example, if you have a $10,000 limit and you only use $1,500, which is 15% of your available credit, it will be much better perceived than if your available limit is $2,000, and you also use $1,500, so 75% of your available credit. This is a sign that even if you have access to more credit, you are not necessarily using it. In other words, you are disciplined, and credit scores like that.

3. Your credit history

Your credit score also takes into account your credit history. How many years have you had obligations? How long have your credit accounts been open and what is the average age of all your accounts? A long credit history is helpful (if it’s not marred by late payments and other negatives), but a short history can also be fine as long as you’ve made your payments on time and aren’t carrying too much debt. Closing old credit accounts, even if you don’t use them anymore, could have a negative effect. It’s something to keep in mind.

4. New credit applications

The amount of new credit applications is significant. When you apply for credit, lenders usually run a check on your credit report. This is different from a simple application, such as viewing your own credit information.

A lot of openings or applications in a short period of time can result in a slight and temporary drop in your credit score. Why? The score assumes that if you’ve opened several accounts recently and the percentage of those accounts is high relative to the total number, you may be a greater credit risk. This is what people tend to do when they have cash flow problems.

5. Type of debt

One minor component that is taken into account when determining your credit score is whether you use different types of credit, such as credit cards, car loans, mortgages, etc. In theory, it is best to have one credit account in each category, but since this is a small component of your score, don’t worry if you don’t. If you don’t have accounts in each of these categories, don’t open new accounts just to increase your mix of credit types.

Some tips, in brief:

  • Pay your bills on time. 
  • Monitor your credit utilization rate and keep your credit card balances below 30% of your total available credit.
  • Do not reapply for credit multiple times in a short period of time. 
  • Check your credit rating at least six months in advance if you plan to make a major purchase that will require financing. 
  • If you have a bad credit score or flaws in your credit history, don’t despair. Start following the tips listed above and you will see gradual improvements in your score as the effect of the negative items in your history diminishes.

 For your information, here is a list of items that do not affect your credit rating:

  • Paying with a debit card
  • Your salary
  • Civil status
  • A high interest rate on a loan
  • Checking your own credit report 
  • Challenging information in your credit report
  • Paying a fine (before the deadline)
  • Taking money out of an RRSP, TFSA or other non-credit related accounts



  • Maxime Dubé, M.Sc., CFA
    Maxime holds a Masters degree in Finance from the Université de Sherbrooke and is a CFA charterholder since 2019. He joined the Claret team in 2016 as a junior investment research analyst and was promoted to portfolio manager in 2019.

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