What Factors Impact Credit Scores: The Real Reasons Behind Your Credit Rating

If you’ve ever wondered why your credit score seems to move up or down for reasons you can’t quite pin down, you’re not alone.

We’ve helped thousands of Canadians through Cars with Chloe, and seen first-hand how even small changes in payment habits or a new card application can shift someone’s score. Here’s what actually matters - and how you can use that knowledge to your advantage.

Key Takeaways

Payment history and credit utilization matter most - missing bills or maxing out cards can drag your score down fast. [1]
The longer your credit history (and the more varied your accounts), the better, as long as you manage them responsibly.
Checking your credit, fixing mistakes, and applying for new credit carefully are things you can control to help your score.

Payment History and Its Influence on Credit Scores

Most lenders, and frankly, most of us at Cars with Chloe, look at payment history first. We’ve seen how it accounts for about 35 percent of a credit score in Canada. Paying bills on time is the single biggest indicator of creditworthiness. If someone’s missed even one car payment or let a credit card slip past due, it shows up - sometimes for years.

Importance of On-Time Payments

We remember a client who came to us for help with bad credit car loans in Edmonton who then never missed a single payment over five years. Their score improved dramatically, even when they took on a bigger auto loan. Consistent on-time payments build trust with lenders and the bureaus (Equifax Canada and TransUnion Canada). It’s simple: pay what you owe, when you owe it.

But once, we helped a borrower who missed two credit card payments in a row. Their score dropped by nearly 80 points within a month. The system is unforgiving.

Consequences of Negative Payment Records

Negative marks - bankruptcies, collections, even a single account sent to collections - stick out like a sore thumb, often making it necessary to seek out options like low credit car loans. The more recent and frequent the missed or late payments, the worse the hit. Bankruptcy, for example, can remain on your credit report for up to seven years. We’ve worked with folks who thought one bad year wouldn’t matter, but those black marks linger.

Strategies for Maintaining a Positive Payment History

We always recommend setting up payment reminders. Most of us use our phones for this. Some set up automatic payments for at least the minimum due, especially on credit cards, to avoid late fees.

If you’re juggling several bills, even a simple spreadsheet helps. The goal is to keep your payment history clean - because once it’s tarnished, it takes a lot of steady payments to recover. [2]

Credit Utilization and Debt Management

Credit utilization, or how much credit you’re using compared to your limits, is the second most important credit score factor - about 30 percent of your score. We talk about this a lot with our applicants.

Understanding Credit Utilization Ratio

Think of it as a percentage: if your credit limit is $10,000 and you owe $3,000, your utilization is 30 percent. The sweet spot is keeping this below 30 percent across all your credit cards and lines of credit. Once, a customer had $8,000 in available credit but owed $7,500. Their utilization was over 90 percent, and their score suffered.

Effects of High Credit Balances

Lenders see high credit card balances as a risk. It doesn’t matter if you always pay off your cards eventually - if your balances are high when the statement closes, your score will reflect it. Using up most of your limit, even temporarily, makes you look desperate for credit.

Best Practices for Managing Credit Usage

Pay down high balances as soon as possible, not just at the due date.
Spread spending over several cards, instead of maxing one out.
Resist the urge to close unused cards if they have no annual fee; they help your overall limit and lower your utilization ratio.
Check your statement balances mid-cycle and pay them off before the statement date to reflect a lower usage.

Credit History Length and Account Age

We’ve noticed that many first-time buyers in Canada, especially newcomers, get frustrated by this one. Length of credit history makes up about 15 percent of your credit score. Lenders want to see that you’ve handled credit well over time - not just for a couple of months.

Components of Credit History Length

Credit bureaus look at the age of your oldest and newest accounts, and then average them. If you’ve only had a credit card for a year, your average is low. If you’ve got an old card from college and just opened a new auto loan with us, your average is better - but opening too many new accounts can drag down that average.

Influence of Credit History on Scoring Models

Someone who’s been borrowing responsibly for ten years is seen as less risky than someone new to credit. We helped a recent university grad who had only one credit card for two years; their score was decent, but not great. Once they kept that card open and added a small car loan (with on-time payments), their score improved.

Enhancing Credit History Over Time

Keep your oldest accounts open and active, even if you rarely use them.
Avoid closing old cards unless there’s a good reason (like high fees or fraud).
Apply for new credit only when needed, and space out applications to avoid shrinking your average account age.

Credit Mix and New Credit Activity

Diversity in your credit accounts is another piece of the puzzle, though not as big as payment history or utilization. Still, about 10 percent of your credit score comes from your credit mix and your approach to new credit.

Diversity of Credit Types

Lenders like to see a mix - credit cards, installment loans (like car loans), and maybe a line of credit or mortgage. We’ve seen higher scores for people who can handle both revolving (cards) and installment (loans) debt responsibly. If all you have is one credit card, your score might hit a ceiling.

Impact of New Credit Inquiries

When you apply for new credit, a hard inquiry shows up on your report. Too many hard inquiries in a short period make you look like you’re scrambling for cash. We had an applicant who shopped for five credit cards in three months - his score dipped nearly 40 points. Soft inquiries, like checking your own score, don’t hurt at all.

Balancing Credit Expansion and Stability

Space out credit applications; more than two in a six-month period can be a red flag.
Avoid applying for credit you don’t need.
Monitor your report for unauthorized inquiries; they can be disputed.

Public Records and Negative Information

This is the part nobody likes to talk about, but it matters. Public records - bankruptcies, consumer proposals, judgments, collections - can tank a credit score. We’ve seen it up close.

Types of Negative Public Records Affecting Credit

Bankruptcies and consumer proposals stay on your file for at least six years in Canada. Collections and judgments are just as damaging. Even a single account sent to collections (like a forgotten cellphone bill) can take years to recover from.

Managing and Rectifying Negative Information

Check your credit report regularly for errors. We’ve seen collections listed by mistake.
Dispute inaccuracies with the bureau directly - sometimes it’s as simple as a phone call or filling out an online form.
Make payment arrangements on old debts. Lenders see effort.

Long-Term Effects and Recovery Strategies

Negative marks lose their impact over time but don’t disappear quickly. We’ve watched clients rebuild their credit by focusing on new, positive payment patterns, keeping balances low, and avoiding new negative events. It’s slow, but it works.

Credit Report Monitoring and Accuracy

We encourage everyone - applicants or not - to pull their credit report at least once a year. Both Equifax Canada and TransUnion Canada offer free ways to check. Your report shows every account, balance, payment pattern, and negative mark. We’ve caught errors that saved customers hundreds of points.

Understanding Credit Reports from Major Bureaus

Reports show all credit accounts, payment history, balances, limits, and public records. Not all debts get reported (some mortgage payments might not), but most consumer credit is there.

Importance of Regular Credit Review

Identity theft and fraud are real. We’ve seen fake accounts opened in good customers’ names, which then get sent to collections. Catch this early, and you can fix it before it does lasting harm.

Correcting Credit Report Errors

Dispute mistakes right away; both Equifax and TransUnion have simple online processes.
Provide supporting documents for faster resolution.
Once corrected, your score can bounce back within a month or two.

Practical Tips for Credit Score Improvement

We always remind clients: there’s no magic fix, but there are habits that work.

Establishing Healthy Credit Habits

Pay bills on time, every time.
Keep credit card balances well under your limits.
Don’t apply for new credit just because you get an offer.

Strategic Credit Management

Use your cards occasionally and pay them off quickly.
Focus on paying down high-interest debt first.
Keep old accounts open and monitor for fraud.

Utilizing Credit Education Resources

Learn about credit scoring models - there are myths out there (like the idea that checking your own score hurts it; it doesn’t).
Use credit education resources, like those we provide at Cars with Chloe, to understand your report and how to improve it.
If you’re unsure, ask for help - many Canadians don’t realize how much their score can change with just a few tweaks.

FAQ

How does the mix of different types of credit affect my credit score?

Having a variety of credit types, like credit cards, car loans, and a mortgage, can impact your credit score. Lenders like to see that you can manage different kinds of credit responsibly. However, if you only have one type, such as just credit cards, your score might not grow as much as it could with a balanced mix.

Can the length of my credit history impact my credit score even if I have no recent activity?

Yes, the age of your credit accounts matters. Even if you don’t use older accounts often, having a long credit history can improve your score because it shows lenders you have experience managing credit over time. Closing old accounts or not using them at all might shorten your credit history and lower your score.

How do small missed payments affect my credit score compared to larger missed payments?

Missing a small payment by a few days can still hurt your credit score, but it usually has less impact than missing larger payments or being late by several weeks. Even minor late payments show lenders some risk, so it’s important to pay on time, no matter the amount, to keep your score healthy.

Does paying off a loan early influence my credit score positively or negatively?

Paying off a loan early can have mixed effects. On one hand, it shows you paid your debt, which is good. On the other hand, it might reduce the diversity of your credit accounts or shorten your credit history, which could lower your score slightly. The overall impact depends on your full credit profile.

How do credit inquiries from different types of lenders impact my credit score?

Credit inquiries from mortgage lenders or car loan companies are often grouped together if made within a short time, so they have limited impact on your score. But if you apply for several unrelated types of credit in a short period, each hard inquiry can lower your score, signalling high credit risk to lenders.

Conclusion

We’ve seen all kinds of credit stories, from newcomers with no history to experienced borrowers who hit a rough patch. The good news is, almost anyone can improve their credit score with some patience and the right steps.

If you’re thinking about a car loan, or just want to see where you stand, you can start the process with us - no obligation - at Cars with Chloe’s application page. It’s fast, and you’ll know exactly where you stand.

References

https://www.equifax.ca/personal/education/credit score/articles/-/learn/what-impacts-credit-score/
https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/improve-credit-score.html