Credit Score

Have you ever wondered what the heck your credit score has to do with anything anyway?


Your credit score, also known as a FICO Score  or Beacon, is used by lenders to help them decide whether you are a good (low) credit risk. There are two agencies in Canada that calculate consumer credit score, Equifax and Tansunion; however, most lenders use the Equifax score for lending decisions.  The table below outlines the factors considered by Equifax in calculating your credit score along with an estimate of how seriously each factor affects the score.

 

Past Payment History35%Bankruptcies, late payments, past due account and wage attachments
 Amount of Credit Owing 30% Amount owed on accounts, proportion of balances to total credit limits
Length of Time Credit has been established 15%Time since accounts opened, time since account activity
Search for and acquisition of credit10%Number of recent credit inquiries, number of recently opened accounts
Types of credit established10%Number of various types of accounts (credit cards, retail accounts, mortgage) improving your credit score

 

A credit score ranges between 300 (low) and 900 (high). The lower the credit score, the riskier it is considered to extend credit, as a lower score indicates a higher likelihood of default. A credit score 680 and above is considered to be good credit and leads to a higher likelihood for credit to be extended to an individual.

Checking Your Credit Score

The easiest way to check your credit score is to visit www.equfax.ca. While there is a fee associated with obtaining your credit score, the knowledge is more that worth the cost by allowing you to determine if you are ready to apply for a mortgage or other forms of credit.

Credit Scores and Mortgage Qualification

A credit score 680 or above is ideal. However, you can still qualify with a lower score. If your score falls within the 650-680 range, it may still be possible to qualify for a mortgage depending on debt-to-income ratios.

Building-Up Your Credit Score

  • pay your bills on time – late payments, missed payments and collections can have a large negative impact in a score
  • Keep balanced low on revolving credit accounts, such as credit cards and lines of credit. High outstanding debt can negatively affect a credit score. Ideally you want the balance to be less than 35% of total available credit.
  • Apply for new credit only when needed. A larger number of inquiries appears risky to lenders.
    • When rate shopping, multiple inquiries for the same type of credit such as a car loan or mortgage will not negatively affect you if all inquiries occur within a 45 day period.
  • Credit history counts; the longer an account is open the better it looks. So don’t close any unused cards/accounts as a way to boost your score in the short term.
  • Make sure the information is your credit report is correct. There is no affect to your credit score if you request a credit report. If there are errors, contact the lender and the credit reporting agency.

If you have any other questions regarding credit please see the Credit FAQ page, or contact us directly.

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