Having Multiple Credit Products Can Impact Your Credit Score

Before creditors decide to grant or deny your loan request, they consider several factors including your credit score. Creditors are interested in learning about your financial behaviour and your credit score reflects your ability to pay back a loan. The higher your score, the better your chances of getting a loan.

This leaves us with the question: what impacts your score?

Credit scores in Canada are based on factors which range from the amount you have borrowed to the type of credit products you have. This should not be confused with a credit rating, which is the rating of each individual item on your credit report separately. Although the rating of each item on your credit report does have an impact, it is not the only thing that affects your overall score.

Other factors that contribute positively to your score are:

• Consistent and timely payment of bills
• The amount of your credit limit you use i.e. your debt to credit ratio
• The number of new credit accounts you have
• The length of your credit history
• The variety of credit products you have (your credit mix)

How multiple credit products impact your score

Having multiple credit products of the same type, such as credit cards, will impact your credit score negatively. It is advisable to have a mix of products such as one or two credit cards, loan, line of credit, and a mortgage. Creditors are interested in knowing how you manage these accounts as it is a strong indicator of your credit health.

Credit cards typically carry a higher interest rate than a line of credit. If you find you have multiple credit cards, try consolidating them into a lower interest rate line of credit. Talk to your bank to determine if you might qualify. This can be the first step to debt relief and credit building for many consumer debtors.

Be sure once you have consolidated your credit card debt into a single loan that you cancel the cards which you have paid off. This will reduce the number of credit cards showing up on your credit report and will positively impact your credit score. One common error people make is keeping and using those credit cards, causing you to not only have a line of credit to worry about, but multiple credit cards as well.

Having high balances on credit products will also reduce your credit score even if you are paying on time. Try to keep your balances below 35 percent of the available credit to improve your score.

The results of lower percentage of debt per credit product, various credit products and fewer credit cards will positively affect your credit score and put you on the way toward debt relief with lower interest rates.

For more information, contact MNP today at 310-3328. One of our debt solution providers will be happy to help you better understand your credit score and what options and solutions are available for you to move toward a debt free future.

For more helpful tips on how to understand credit reporting in Canada, please visit Government of Canada.