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The AC Lending Weekly

Credit 101: What is Credit?

You’re ready to make one of the biggest purchasing decisions in your life and buy your own home. First things first. You have to have good credit. But what exactly is credit and how does it work?


There are 2 credit agencies in Canada (Equifax and Transunion ) that your credit information gets sent to. These companies then use that information to compose your credit score or credit rating. Your financial situation and spending habits are monitored and reported much like getting a report card from school. Credit scores usually range from 400 to 900. Anything over 680 can be considered as excellent credit.


Factors that contribute to your score:


1. Payment history – Pay your bills on time. That’s it and that is all. Just do it! Cell phone bills are now included in credit reports so be sure to pay on time.
2. The amount of credit you owe- How much credit do you have available to you?
3. Credit Usage- Your credit score could drop if you owe more than 50% of the available limit.
4. Credit Experience – How long have you had your loans? Ideally you would want to have a history of good repayment.
5. Acquisition of credit – How many loans have you applied for? A high number of inquiries from different lenders can cause your score to drop.
6. Types of credit Established. – It is good to have a mix of revolving and installment loans like a credit card or vehicle loan.

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