Learn About Your Credit and Credit Score

What is a Credit Score?

Your credit score and rating is produced and compiled by Equifax, to help you estimate your general credit position, and to provide banks and lenders with information to assess whether or not you're a good (low) credit risk. Using FICO scores (mathematical formulas created by Fair Isaac & Company) and/or Beacon (Pinnacle) scores, Equifax crunches the numbers from your credit report, and spits out a score somewhere between 300 and 900. A low score says you’re a bad credit risk; a score of 700 or higher puts you in the financial driver’s seat. Here are the factors considered by Equifax when calculating your credit score and an estimate of how heavily each factor is weighted.

Understanding your Credit Bureau Report

The higher your number or ‘Beacon’ (now Pinnacle) score, the better your credit rating. The purpose of this score is to provide lenders with a prediction as to the credit risk you represent, based on your past behaviour. Here is what your score is based on:

1. Past Performance – 35%

• The fewer late payments you make, and the fewer judgments, liens or collections you have, the better.
• Late payments are time sensitive. The Credit Bureau will give more weight to recent occurrences of late payments as opposed to those two years or older.

2. Outstanding Debt/Credit Utilization – 30%

• Low balances on several cards are better than high balances on a few cards.
• It is ideal to keep the maximum charged to the credit cards at or below 70% of the available credit. Your score will be adversely affected once you exceed 80% of the available credit on those cards.

3. Credit History – 15%

• The longer the credit accounts have been open and in good standing, the better.

4. Types of Credit in Use – 10%

• Finance company accounts like BestBuy and HBC cards score lower than traditional banking or retail accounts.
• Deferred payment options (i.e. buy now and pay later) are interpreted as a potential future risk.

5. Inquiries – 10%

• Having too many inquiries over a short period of time can be perceived as ‘shopping for credit’ and be indicative of high risk.
• If you carry a good credit score to begin with, inquiries will have little to no affect on your score.

Interpreting Your Score

• Credit scores range from 300 to 900.
• The average consumer has a score of 780.
• First-rate lenders want a score of at least 740.
• Second-rate lenders want a minimum score of 640 or higher.

It's interesting to note that your net worth or your annual income is not part of your credit score calculation. There is no fundamental reason why a groundskeeper should have a lower credit score than a surgeon.

The reporting system is not perfect, so make sure to verify the information on your credit bureau report. If you find an error, the first step is to call the Credit Agency at 1 800 465 7166.

What can you do to build your Credit Score?

• Pay your bills on time. Delinquent payments and collections can have a major negative impact on a score.
• Keep balances low on credit cards and other “revolving credit.” High outstanding debt can affect a score.
• Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix—it probably won’t raise your score.
• Pay off debt rather than moving it around. Also, don’t close unused cards as a short-term strategy to raise your score. Owing the same amount but having fewer open accounts may lower your score.
• Make sure the information in your credit report is correct. It won’t affect your score to request and check your own credit report. If you find errors, contact the credit reporting agency and your lender.

How to check your Credit

Visit www.equifax.ca to order your report and score for a fee. And yes, you can repair your own credit. Most people, however, find that they do not have the time, persistence, knowledge, or patience. An option is to choose to have a professional handle the debt consolidation process instead.

We recommend debt consolidation over bankruptcy, and here's why.

How to repair damaged Credit

Bankruptcy - the Hard Way Out

Filing for bankruptcy has very serious consequences. Once you have filed for bankruptcy, your credit bureau will carry this record for at least six years—making it very hard for you to re-establish your credit. Additionally, many of Canada’s lenders will never loan you money again if they suffered a loss as a consequence of your bankruptcy filing.

In the vast majority of circumstances, the best course of action is to consolidate your debts, lower your monthly payments, and re-establish control over your finances. We do have some lenders that will provide mortgages for clients that have been discharged for 2 years and have 1 year of re-established credit with 2 methods of trade (a credit card and a loan, or 2 credit cards). After bankruptcy, it can be a challenge to re-establish your credit. The best way is to get a secured credit card. A secured credit card requires that you place funds down upfront to the credit card provider. If you default on the credit card, the credit provider keeps these funds.

Re-establishing Credit

To apply for a secured credit card, visit Capital One for their process. For more information about your Credit Rating, how to manage/improve your score and what factors may affect it, check out our Credit FAQ’s.

Note: Rules and guidelines are subject to change. Please inquire within.