Understanding Credit Scores
Languages: English
Media Editing: The video module(s) in this subject are editable under our Content Studio offering unless otherwise indicated. For more information about Content Studio, contact your CSM.
Description: A credit score is probably something your employees have heard of before. Maybe they had to get one to apply for a loan or to rent an apartment. But what exactly is it? Who calculates it and how? How does someone make it better? These are all important questions your employees have possibly asked themselves or been asked by a customer. In this subject, we'll cover the basics of what a credit score is, the factors that go into calculating it, and ways that customers can improve their credit score. While the over-arching concepts are globally applicable, the specific credit scores and scoring models covered are based on those used in North America.
Languages: English
Media Editing: The video module(s) in this subject are editable under our Content Studio offering unless otherwise indicated. For more information about Content Studio, contact your CSM.
Description: A credit score is probably something your employees have heard of before. Maybe they had to get one to apply for a loan or to rent an apartment. But what exactly is it? Who calculates it and how? How does someone make it better? These are all important questions your employees have possibly asked themselves or been asked by a customer. In this subject, we'll cover the basics of what a credit score is, the factors that go into calculating it, and ways that customers can improve their credit score. While the over-arching concepts are globally applicable, the specific credit scores and scoring models covered are based on those used in North America.
Languages: English
Media Editing: The video module(s) in this subject are editable under our Content Studio offering unless otherwise indicated. For more information about Content Studio, contact your CSM.
Description: A credit score is probably something your employees have heard of before. Maybe they had to get one to apply for a loan or to rent an apartment. But what exactly is it? Who calculates it and how? How does someone make it better? These are all important questions your employees have possibly asked themselves or been asked by a customer. In this subject, we'll cover the basics of what a credit score is, the factors that go into calculating it, and ways that customers can improve their credit score. While the over-arching concepts are globally applicable, the specific credit scores and scoring models covered are based on those used in North America.
Topics
What is a Credit Score and Why is it Important?
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A good or bad credit score can often be the difference between achieving a big life goal or missing out. Things like buying a house, renting an apartment, and applying for a loan or a credit card are heavily dependant on credit scores. So, what exactly is it? In this topic, you’ll learn what a credit score is, how it works, and how it is used by lenders and creditors. You’ll also learn about the benefits of a good credit score, as well as what can happen if you have a poor credit score. This way, you’ll be able to confidently and accurately have these conversations with your customers.
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Questions (level 1, 2, 3)
Video module
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This topic is currently available in English.
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Credit is your ability to borrow money, goods, or services from a creditor and repay it according to the lender’s terms.
A credit score is a three-digit number that predicts how likely a person is to pay their debts back and on time. Points are gained for using credit responsibly, and points are lost for managing it poorly.
Lenders, creditors, and other organizations use a person’s credit score to decide if they want to offer the person credit or other benefits, and to determine the terms of the agreement.
A credit score is not the same as a credit report. A credit report is a summary of a person’s credit/payment history. The information in it is used to help determine a person’s credit score.
Higher credit scores increase lenders’ trust and confidence in a person since it shows they’ve been responsible with their credit in the past.
People with higher credit scores are usually offered better terms or rewards by lenders. This could include lower interest rates or credit cards with better rewards/benefits.
Having a poor credit score or no credit history can make it more difficult for a person to get credit, rent or buy a home, or even get a job since they’re more likely to receive unfavorable terms or be denied services.
A person’s credit score will change over time as their credit report and history changes and is updated.
Credit scores cannot be transferred between countries, even if they use similar scoring systems.
How is a Credit Score Calculated?
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Credit scores are important numbers for helping lenders and creditors decide whether to offer you credit or not. So, who creates and calculates these important numbers? In this topic, you’ll learn how credit scores are calculated and by whom. We’ll also cover what affects these calculations and what good and bad credit scores look like in both the United States and Canada, since they use similar scoring models.
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Questions (level 1, 2, 3)
Video module
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This topic is currently available in English.
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Credit scores are calculated by private companies called credit bureaus. They collect and share your credit information and history with creditors who ask to check your credit and use it to create an overall score. Credit bureaus don’t decide if you get approved for credit by lenders.
Each credit bureau uses their own unique and secret formula to calculate a person’s credit score based on the credit report they have for the person. This means a person could receive a different score from each credit bureau.
There are five main factors credit bureaus use to calculate a person’s credit score. More than 50% of the calculation is based on payment history and amounts owing/debt burden. The rest is based on length of credit history, types of credit, and recent searches or new credit applications.
Lenders may choose to use a credit score from a single credit bureau or all of them depending on what factors the lender thinks are most important and what their minimum credit score is. They might also look at additional factors like income, job history, and the type of credit being requested.
Credit scores in Canada are between 300 and 900 points.
In general, credit scores in Canada fall into the following ranges:
· 300-559: Poor
· 560-659: Fair
· 660-724: Good
· 725-759: Very good
· 760-900: Excellent
Credit scores in the United States are between 300 and 850 points.
In the United States, the following ranges are usually used to evaluate a credit score:
· 300-579: Poor
· 580-669: Fair
· 670-739: Good
· 740-799: Very Good
· 800-850: Excellent
How to Improve a Credit Score
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Life often brings unexpected events and expenses that can affect and disrupt your plans, especially when it comes to your finances. While it can seem overwhelming if a low credit score is preventing you from achieving your goals, there are ways to improve it. In this topic, you’ll learn a variety of ways both you and your customers can improve your credit scores, some of which are as straightforward as paying your bills on time and checking your credit report regularly.
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Questions (level 1, 2, 3)
Video module
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This topic is currently available in English.
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Check your credit report and credit score at least once a year, so you can make sure everything is correct, and you can identify the areas you can improve to increase your credit score.
If you notice information is missing or any errors or fraudulent activity on your credit report, contact the lender or creditor who reported the information as well as the credit bureau. File a dispute to have the issue resolved as soon as possible. Inaccurate information can affect your scores.
Always pay all your bills on time to show lenders you’re financially responsible and trustworthy. Even things like missed payments on your phone or utility bill can be reported to credit bureaus and affect your credit score.
Use and maintain different types of credit accounts, if possible, to show lenders you can manage multiple debts at once. It will also give them a better sense of your financial position.
Avoid defaulting on your credit accounts (failing to fulfill your part of the contract), as this can significantly decrease your credit score and remain on your report for years. This includes things like foreclosure, bankruptcy, repossession, and charge-offs, when a creditor closes the account without receiving their payment.
Build the length of your credit history. Too many new accounts can lower your credit score. The longer an account has been in use, the more it will help your credit score, especially if you make payments on time.
Limit how often you apply for new credit products, especially within a short amount of time, to reduce the number of hard inquiries (credit check requests) on your credit report. Too many of them can make lenders hesitant since it can seem like you’re urgently seeking credit, trying to live beyond your means, or are being denied credit.
Keep your credit usage percentage below 30% to show you’re not too dependent on credit. Credit usage (or utilization) refers to how much of your total available credit you’re using a month across all products.
How Credit Card Use Impacts Credit Scores
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Credit cards are one of the most common ways customers use credit since they offer a quick way to borrow money to make purchases. How a customer uses or abuses their credit card(s) can affect their credit score and ability to apply for additional credit or make other purchases, like a house or apartment. In this topic, you’ll learn what actions can affect a customer’s credit score, either positively or negatively, as well as some tips to help customers improve their credit score using their credit card.
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• Questions (level 1, 2, 3)
• Video module
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This topic is currently available in English.
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Closing old credit card accounts that you’re not using can potentially lower your credit score because it reduces the average age of your accounts and lowers your total available credit, increasing your credit usage percentage.
Pay down the balance on your credit card regularly and on time, making more than the minimum payment each month as often as possible. This will help decrease your credit usage percentage and help you save on interest payments.
Keep your credit card balance well below its credit limit. This will show you’re financially responsible and help lower your credit usage percentage, improving your credit score.
Don't max out or exceed the credit limit on your credit card. Doing so can significantly impact your credit score since it can make you look like an irresponsible person and your usage percentage on the card will be 100%.
Increasing the credit limit on your credit card can help improve your credit score if you keep your spending the same. This is because it helps lower your credit usage percentage.
