What is a credit score?

What is a credit score?


A credit score is an assessment of your credit history and your ability to manage the credit assigned to you. This is the result of a mathematical formula that is used to quantify your level of risk. This number is obtained after a detailed analysis of your credit file, where your credit history is (types and duration of your loans, compliance with payment due dates, etc.) and your personal information.
Assessing an individual's credit rating

A credit rating is usually assigned by a credit rating agency. These companies collect data to assess the likelihood that an individual will be able to meet their financial commitments.

The credit rating changes over time, depending on the behavior of the person. For example, your credit rating could be lowered if you have late payments, as well as credit cards and a lot of loans that are nearing limit. Conversely, making all of your payments on time can help improve your credit rating.

Credit scores usually range from 300 to 900. A good credit score is 670 or higher. A rating of 800 or higher is excellent, indicating that the risk of defaulting on your payments is low. This is one of the indicators that is used by the companies that consult it to determine whether your request will be accepted and under what conditions, if applicable.

There are a number of factors that can influence your credit rating, demonstrating your ability to manage credit. Here they are in order of importance (%):

    Your payment habits (35%)
    The more often and before your due dates you pay, the better your score will be. In contrast, late payments and defaults penalize your score.
    Your use of available credit (30%)
    Approaching your credit limit can negatively impact your score.
    The date of opening your account (15%)
    The age of your account can have a positive impact on your rating. This is because an account that has been open for a long time allows lenders to learn more about your repayment habits. Having an account paid on time and over a long period of time is a sign of sound management of your credit.
    The number and type of receivables (10%)
    A variety of accounts can have a positive impact on your score, such as having all three of the following types of accounts: a mortgage, a credit card, and a line of credit. However, having several accounts of the same type can work against you: several accounts of the same type give access to more credit and to possible over-indebtedness.
    The number of new requests you make (10%)
    The more credit applications you make, the more it will negatively impact your rating.

What is the credit rating for?

Lenders use a credit score to assess a customer's level of risk. Telecommunications companies, insurers, building owners and government agencies also use credit scores to assess the level of risk.
Some debunked credit score myths
1. My credit rating will be penalized if I check my credit report

Not at all! On the contrary, to take control of your financial situation and spot fraud, it is very useful to check your credit report regularly.
2. It is impossible to oppose the assessment sent by creditors to credit agencies

You always have the right to report any inaccuracies that appear on your file to the credit bureaus.
3. Changing my spending habits won't change my credit rating

Credit score takes into account your credit card balances and other loans, so reducing that balance is always helpful. Cutting back on spending, and therefore getting less debt, can positively affect your credit rating.
4. My business debts do not affect my personal file

In fact, even if the accounts are separate, lenders will often ask you for a personal guarantee for the money loaned to your business. If your business is in trouble, your personal records might end up reflecting it.
5. Responsible use of my debit card improves my credit rating

A debit card is not counted as a credit card. With a debit card, there is no concept of credit, you are just using the money you already have.