Your credit score shows whether you have a history of financial stability and responsible credit management. The CTOS Score ranges from 300 to 850 – the higher the score, the better for you. Here are the elements that make up your CTOS Score and how much weight each factor carries.
1. Payment History – 45%
The most important component of your credit score looks at whether you can be trusted to repay money that is lent to you. This component of your score considers the following factors:
- Have you paid your bills on time for each account on your credit report? Paying bills late has a negative effect on your score.
- If you’ve paid late, how late were you – 30 days, 60 days or more than 90 days? The later you are, the worse it is for your score.
- Have any of your accounts gone to collections? This is a red flag to potential lenders that you might not pay them back.
- Do you have any debt settlements, bankruptcies, foreclosures, legal suits or judgments against you? These are some of the worst things to have on your credit report from a lender’s perspective.
2. Amounts Owed – 20%
The second-most important component of your credit score is how much you owe. It looks at the following factors:
- How much of your total available credit have you used? Less is better, but owing a little bit can be better than owing nothing at all because lenders want to see that if you borrow money, you are responsible and financially stable enough to pay it back.
- How much do you owe on specific types of accounts, such as a mortgage, auto loans, credit cards and installment accounts? It’s good to have a mix of different types of credit that you can manage responsibly.
- How much do you owe in total, and how much do you owe compared to the original amount on installment accounts? Again, less is better.
3. Length of Credit History – 7%
Your credit score also takes into account how long you have been using credit. For how many years have you been using credit? How old is your oldest account, and what is the average age of all your accounts?
A long history can be helpful if it doesn’t show late payments and other negative items, but a short history can be fine too, as long as you’ve made your payments on time and don’t owe too much.
4. Credit Mix – 14%
Your CTOS Score considers whether you have a mix of different types of credit, such as credit cards, instalment loans and mortgages. It also looks at how many accounts you have in total. Since this is a small component of your score, don’t worry if you don’t have accounts in each of these categories, and don’t open new accounts just to increase your mix of credit types.
5. New Credit – 14%
The final component in determining your credit score is how many new accounts you have. It looks at how many new accounts you have applied for recently and when (the date) you last opened a new account.
If you’ve opened several new accounts recently, the assumption is that you could be a greater credit risk; people tend to open new accounts when they are experiencing cash flow problems or planning to take on lots of new debt.
For example, when you apply for a mortgage, the lender will look at your total existing monthly debt obligations as part of determining how much mortgage you can afford. If you have recently opened several new credit cards, this might indicate that you are planning to make numerous purchases on credit in the near future, meaning that you might not be able to afford the monthly mortgage payment the lender has estimated you are capable of making. Lenders can’t determine what to lend you based on something you might do, but they can use your credit score to gauge how much of a credit risk you might be.