Having Multiple Credit Products Can Impact Your Credit Score

Many consumers wonder what creditors look at when determining whether or not to grant a loan. Of course, it is relatively common knowledge they look at our credit score to help make a decision, but the question that remains is, what other factors impact that score? Is there any way to find some debt relief while actually improving our credit score? Will a consolidation loan have any impact on the credit score? While there are many different factors that will affect your credit score, this blog will specifically discuss the impact of multiple credit products and whether they will help or hinder your credit score at the end of the day.

Person online shopping on their laptop holding a credit card

Credit scores in Canada are based on factors which range from the amount you have borrowed to the type of products that 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.

Your credit score is based on a number of different factors. Creditors will use this score, among other things such as income and assets, to help them determine whether or not they will grant or deny credit. The higher your score, the better your chances of obtaining credit. The score will range from 300 to 900 and indicates overall financial health, credit worthiness and risk.

Many people believe that as long as they have a good loan repayment history, their score will be high. Although positive loan repayment history is a major factor in determining your credit score, it is not the only factor. You will be granted points toward your score based on many different elements.

One element people do not often consider is the variety of credit products they are using.

Having multiple credit products of the same type such as credit cards will cause a negative impact on your credit score. Try to vary the types of products you have, such as one or two credit cards, a loan, a line of credit and a mortgage. This leads to a much healthier credit score by giving you more points.

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% of the available credit in order 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 information on how to understand your credit score, 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.