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 Transunion; 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 history – 35 percent — Bankruptcies, late payments, past due account and wage attachments
- Amount of credit owing – 30 percent — Amount owed on accounts, proportion of balances to total credit limits
- Length of time credit has been established – 15 percent — Time since accounts opened, time since account activity
- Search for and acquisition of credit – 10 percent — Number of recent credit inquiries, number of recently opened accounts
- Types of credit established – 10 percent — 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 of 680 or higher is considered good credit and leads to a higher likelihood for credit to be extended. Most lenders use Equifax credit reports with a small number relying on Transunion credit reports.
There are several ways to track your credit score:
- Borrowell.com – free service based that will allow you to track changes in your credit score from month to month following the Equifax algorithm as closely as possible.
- CreditKarma.ca – free service based that will allow you to track changes in your credit score from month to month following the Transunion algorithm as closely as possible.
- Equifax – will track your credit score monthly for a fee.
- Transunion.ca – will track your credit score monthly for a fee.
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.
How to Increase Your Credit Score
- Pay your bills on time—late payments, missed payments and collections can have a large negative impact in a score.
- Keep balances 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 percent 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. Do not 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 contact us directly.