Understanding Your Credit Report

News print background with the text 'Reading your Credit report'

I got a number of questions about how to read your credit report so in this post we will go through the highlights. There is a ton of information presented for each credit card you have or have had in the past. All this data contributes to your credit score.

This is going to be in key terms rather than the usual action list. Sit down with your credit report and follow along.
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Stricter Mortgage Rules – In the News

On Tuesday OSFI (Office of the Superintendent of Financial Institutions) released the final draft of the new mortgage qualifications. The new rule says you must prove you can withstand a 2% increase in your mortgage payments. As a mortgage holder if your interest rate is 3% you must prove you can afford your home at an interest rate of up to 5%.
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Types of Credit – The Variety of Debt you Owe

A picture of your credit from bad to excellent with the words ' Types of Credit- 10% of your credit score'

Is more better?

This can seem counter intuitive. Having a number of different types of credit improves your credit score. However, that doesn’t mean have more debt owing. Having different types of credit contributes 10% of your credit score. That can seem small but could be be an 80-point swing.

There is an important difference between more credit and different types of credit. To maximize this 10% you need a variety of different types of credit – not more debt that you owe. Think of this as being well rounded.
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New Credit – A Small Factor in Your Credit Score

A picture of credit scores with the words over top: 'New Credit - 10% of your credit score'

Are you desperately seeking new credit?

The final 10% of your credit score is made up of your new credit. This could be inquires, getting pre approved for a mortgage, or actually getting more credit like a new credit card. This is a relatively small category and has more guidelines than rules. Inquires will only impact your score for a year (but will stay on your credit report for two year).
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A Longer Credit History Increases your Credit Score

A picture of your credit from bad to excellent with the words ' Length of HIstory - 15% of your credit score'

Credit rating agencies believe a longer history where you pay your debt regularly makes you less risky. The longevity of your credit history contributes 15% of your overall credit score.

Your credit history is calculated as an average of all your outstanding debt. Age is a disadvantage here. A 25 year old is unlikely to have a credit history of more than 5-7 years. When that person reaches 50 their credit history will be over 30 years.
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The Amount you Owe – An Obvious Credit Score Factor

A graph of good to bad credit with the text 'Amount Owed - 30% of your credit score'

The amount you owe contributes 30% to your credit score. This is great news as you can likely improve your score here fairly quickly. The amount you owe is actually all about how much you owe compared to how much credit is available to you. Less is more – you don’t want to use any more than 1/3 of the credit that you have available to you. Even if you pay off your balance every month!
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