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Should You Be Working On Your Credit Score?

For most individuals the only relationship they have to their credit score is when they try to obtain something on credit and are forced to hear what the number is from the retailer deciding whether or not they are a viable risk for the extension of that credit.

Most people realize that by paying your bills in a timely fashion you increase your likelihood of obtaining further credit when it is required but fail to realize that it is primarily your credit score that determines that and that there are other ways of causing that number to decline.   A credit report, usually obtained from and agency like Equifax or others consists of an abundance of information including your payment history, the types of credit you have i.e.: car loans, outstanding credit card debt, mortgage etc. as well as the length of the extension of that credit.

For the most part this criterion is fully understood and most think that these are the sole factors considered by retailers when applying for credit.   There is another stream of information factored in that many people are wholly unaware of and would never think of as having an effect on whether you are extended credit or on your credit score used to determine that. That information stream is the amount of credit you have applied for.   No matter if you decided to take the credit card or product or service or not the fact that you sought out additional credit is a factor that used to determine your score. In essence, the more credit you apply for whether you receive it or not it is used to lower your score.

The rationale behind this is that if you are applying for large amounts of different credit streams you may well be in financial distress of some kind.   While this certainly seems arbitrary and presumptive it nevertheless has a very negative effect on your credit score.   Knowing and understanding these factors allow you to be in control of your credit destiny.   Scores range from 300 to 900 with a higher score meaning you are more likely to pay your debts on time as you have a history of doing so.

The benefit in having a higher score in addition to being able to get credit is to get a more favorable interest rate when applying for credit.   While there are certain other criteria used to determine credit eligibility the credit score is understood to be the primary motivator and therefore keeping that score as high as you can and ensuring that you regularly check to make sure it is comprised of valid information is a paramount in maintaining your credit options.   Failure to do so can have seriously negative repercussions over the long term.

 

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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
M3H 2S3

Telephone: (416) 398-1700
Fax: (416) 398-6226

Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant

Email: sam@torontoaccountant.ca

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