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.
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%
2. Outstanding Debt/Credit Utilization – 30%
3. Credit History – 15%
4. Types of Credit in Use – 10%
5. Inquiries – 10%
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.
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.
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.
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.