Your credit score is a measure of how you use credit products. Credit products include loans, credit cards and bills associated with things such as hydro and internet. If you have ever had a credit card, taken out a personal loan or used a “buy now, pay later” offer, you have a credit report. Your credit report contains information about when you started each account, what type of accounts of you have, whether or not you make your payments on time and how much you owe. Even information about your mobile phone or internet accounts can be reported.
Typically your credit score is based on the following items:
- Credit accounts and transactions – credit cards, retail or store cards, lines of credit and loans
- Telecommunications accounts – mobile phone and internet
- Negative banking information – chequing or savings accounts closed “for cause” such as fraud committed by the account holder and bad-cheques such as when you have non-sufficient funds
- Public records – bankruptcy and legal records, or secured loan on a car or house that allows it to be repossessed if you cannot make the payments
- Debts sent to collection agencies
- Inquiries from lenders and others who request your credit report
- Remarks including consumer statements, fraud alerts and identity verification alerts
- Mortgages and home equity lines of credit may be reported on your credit report, but are not always.
However, the specific formula used to calculate your credit score is not disclosed to the public. The following is an estimation of the formula used to calculate your credit score (the percentage indicates how they are weighted). If requested by a potential lender, your credit score can be calculated to weight a specific item more heavily.
- Payment history (35%)
- Use of available credit (30%)
- Length of credit history (15%)
- Number of inquiries (10%)
- Types of credit (10%)
Your credit score is kept on file by companies called Credit Reporting Agencies. There are two large Credit Reporting Agencies in Canada, Equifax Canada and TransUnion. Creditors supply these companies with information about how well you repay our credit and then it is compiled into a personal file for each person. If you would like access to your credit score you can order your score via mail or pick it up in person for free. To have your score emailed you will have to pay a small fee.
In some cases, creditors do not give credit information to both companies or only update them on a monthly basis. Because of this, it is possible that your credit reports from each company could be different. If there is a large discrepancy between your two scores or you believe there is an error, you are entitled to point out the error and have it investigated and corrected for free.
The Credit Reporting Agencies sell your credit score to banks, credit unions, financial institutions, credit card companies, auto leasing companies and retailers to help them decide if you are an appropriate candidate for credit, how much they should lend you and what your interest rate should be
Your negative credit information cannot be kept on file forever, though positive information can be kept. The maximum length of time for varies per category and per province but for most negative information the maximum is six to seven years.
Your credit stored with Credit Reporting Agencies is given ratings based on when the money was paid back. Everything is rated with a letter that stands for the type of credit you are using and a number that relates to how well you used that credit.
|I||Installment Credit||Car Loan|
|O||Open Status Credit||Line of Credit|
|R||Revolving or Recurring Credit||Credit Card|
|0||Too new to rate, approved but not yet used|
|1||Paid within 30 days of billing, pays as agreed|
|2||Pays 31-59 days late|
|3||Pays 60 to 89 days late|
|4||Pays 90-119 days late|
|5||More than 120 days late but not yet rated “9”|
|6||This code is not used|
|7||Making regular payments under a consolidation order, Orderly Payment of Debts, consumer proposal or debt management program with a credit counselling agency.|
|9||Written off as bad debt, sent to collection agency, bankruptcy|
For example, a credit rating of R2 would be assigned if you were 45 days late with your credit card payment. If you were only late on your payment once and were on time for every other payment, it would still show on your record that you were once 45 days late. If you also have a line of credit that you have always paid off on time it will be rated O1. Your various credits are all rated individually of each other.
In Canada, credit scores range from 300 to 900 with 900 being the best score you can get.
- 720 – 900 –> Excellent (The best scores)
- 700 – 719 –> Very Good (Qualified to get favorable financing)
- 675 – 699 –> Average (Will qualify for most loans)
- 620 – 674 –> Sub-prime (May qualify but will get higher interest rates)
- 560 – 619 –> Risky (Will have trouble getting a loan)
- 500 – 559 –> Very Risky (You need to work on improving your rating)
When you order your credit score, you are given your credit rating for each of your creditors. You are also given your credit score which is the more commonly used number when determining if you are a good or bad risk for a loan.
To get a free copy of the PDF version (1,253 KB, 36 pages) on Understanding your Credit Report and Credit Score from the Financial Consumer Agency of Canada, please click on the “Download Now” button below.
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Understanding your Credit Report and Credit Score. PDF version (1,253 KB, 36 pages)