Your credit score is a predictor of how likely you are to pay back your loan — typically, the higher the score you have, the better credit terms you’ll receive. Read on for more explanation of how your score is calculated and what it means for your loan.

The credit score is determined by three independent credit bureaus — TransUnion, Equifax or Experian — which take into account the duration of your credit history, the amount of debt you’re carrying, the size of your existing loans, your payment history, the different types of credit you’ve used (e.g. installment loans, revolving loans) and outside inquiries into your credit.

Since your credit score will impact the interest rate you are offered, it’s helpful to know your score before you apply for a loan. Each of the three bureaus will provide you with one free credit report per year, so use this opportunity to stay up to date on your credit status.

Although building your credit score generally takes time and persistence, here are a few tips to keep in mind:

• Always pay your bills on time
• Keep some distance between the credit you use and your maximum credit limit -this will demonstrate responsible borrowing
• Keep older lines of credit open, since this indicates a longer credit history
• Wherever possible, pay down higher balances, rather than transferring debts between credit sources
• Settle any collections or past due accounts immediately
• Monitor your credit report and dispute any inaccurate items — the most recent two years of your credit history are most important in determining your score

Your Credit Score