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Square one – What is a credit score?

Increase your credit scoreMost people understand the basics, like how failure to make a payment will cause your score to drop, but there are a number of complexities that trip up the average consumer. If you pay your debts on time, don’t have too much debt on one card, don’t close old accounts unless absolutely necessary, and only apply for new credit when you’re generally in good shape. However, it is important to keep yourself informed so that you can maintain a credit rating that accurately reflects your consumer status.

Lenders use your credit report to judge your reliability as a loan applicant. Your credit report indicates your ability to manage your debt responsibly and will help banks decide if you are a desirable loan customer. A high credit score can help you secure low APR rates or get special loan deals. A bad credit history can prevent you from getting loans and can affect your ability to buy a car, open a credit card or rent a house. A history of inability to manage your credit successfully will make lenders uncomfortable about entrusting you with additional funds in the future.

You are entitled to a free copy of your credit report once a year, an offer you should take advantage of. When you receive your credit report, check that the numbers are correct and act quickly to correct any errors. This may include clerical errors, identity theft issues, or incorrect information. If your credit score is low, you should start working on a financial recovery plan, alone or with a licensed debt counselor, to start fixing your bad debt habits.

Take a closer look – What is a credit score made up of?

Your credit score is determined by an algorithm developed by the Fair Issac Corporation (hence its other name of FICO score). Three companies, called “credit bureaus”, specialize in collecting and reporting financial histories. These three companies are Equifax, Experian and TransUnion. Although the exact formula used to calculate your credit score is a closely guarded trade secret, these companies provide general guidelines on financial behavior that can affect your credit score.

payment history

Thirty-five percent of your credit score is made up of your payment history. This includes late payments, collections and even bankruptcies and tax liens. Each type of account will stay on your credit report for a set period of time, and each type of waiver will hurt your score differently. Credit Absolute makes every effort to remove accounts that are not 100% accurate OR not 100% verifiable. Our removal rate averages 70%.

Rate of endettement

Your debt ratio is the amount of revolving credit (i.e. credit cards) you owe compared to the amount of credit you have. For example, if your credit limit is $10,000 and your current balance is $2,000, your debt ratio would be 20%. While ideally you would have your debt ratio at 0%, we generally recommend that you be at least at 30% or less.

Loan term

Your credit period is the length of time you have had credit. At first glance, this seems like something you really can’t do anything to fix. However, there are ways to hurt yourself here. If you close your old cards, even if they have higher interest rates, it will hurt your score. The credit score model has no memory or credit cards that you close: if you close that fifteen-year-old card, you won’t get any credit!

Types of credit

Types of credit include revolving, installment, and mortgage loans. By having different types of credit open, you show creditors that you are responsible and capable of handling different types of liabilities.


Inquiries are listed on your credit report when you apply for new credit (i.e. when you apply for a home loan). If you are pulling your own credit, these requests are called “soft” requests instead of “hard” requests and do not show up on the credit report at all. It is important to note that when searching for a home, you are allowed unlimited inquiries within a 45 day period as it is assumed that you are shopping for rates.

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