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Do Extra Payments Help Your Credit Score?

Transcript of Video:
Hey everyone, Rowan Smith with the Mortgage Centre. I want to address a question a client came up with me on with the credit bureau. And that is, he wanted to know why his extra payments weren’t reflected.

The credit bureau is just a recording of debt payment history and how much your minimum payments are on a particular line of credit, and how your credit history is in terms of your repayment over the long last five years.

If your payment is only $300 on your credit card, and let’s say you owe $10,000. Typically, a credit card would be three percent of balance, so your payment should be $300. So are you getting further ahead by paying $450? Not on a credit bureau, it doesn’t really have a noticeable impact.

A bigger impact would be reducing the balance that you have, that will increase your score better. But even though you pay extra every month, it has no bearing on your actual credit score. It’s simply a factor of do you pay it on time, and what percentage of that credit facility is utilized.

So if you have a $10,000 line of credit, and you’re at $10,000, even though you’re making every payment on time, that’s more harmful than having a $20,000 credit card with only $10,000 outstanding. To that account, you’re only 50 percent utilized.

And again, it’s just a computer algorithm behind this, so the computer system can only make judgments based on that criteria. For the Mortgage Centre, I’m Rowan Smith.

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