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Credit Report Canada

Credit Score vs. Credit Rating in Canada

Now you can listen to our blog post, “Credit Score vs. Credit Rating” while on the go.

Credit score and credit rating are used interchangeably. However, there is a stark difference between the two. When used in casual conversation, you may find it almost identical, but when used strictly, a credit score is a number that ranges from 300 to 900 while a credit rating is a scale from 1 to 9. It is specific to individual accounts or tradelines that appear on a credit report.

Credit Score

Do you intend to purchase a home or condo in the future? Are you planning to purchase a vehicle in the near future? This process can be complicated if you have bad credit.

Your credit ratings show how likely you are to pay your payments on time. It’s a metric that lenders use to assess how dangerous a borrower you are. Equifax and TransUnion are the two Canadian credit bureaus that calculate credit scores, which range from 300 to 900 points. Typically, lenders establish a minimum credit criterion for their customers; however, this amount is not uniform and varies with every lender.

Factors That Decide Credit Score

Multiple types of data from your credit report are used to generate your credit scores. It’s crucial to realise that credit bureaus and third-party score providers each have their own credit scoring algorithms. This means you’ll have a wide range of scores, and it’s impossible to say exactly how they’re calculated.

However, we do know that five major aspects are taken into account:

1. Payment History (35%)

In reality, someone who has a track record of making timely payments is seen as less of a danger. They’re thought to be more trustworthy than someone who makes frequent late, short, or missed payments. This component, on the other hand, considers both late and on-time payments.

Payments made late (30, 60, or 90 days), whether partial or full payments were made, and the total amount of past-due payments are all critical criteria. Accounts that are delinquent are also listed, along with how many there are compared to the overall number of accounts you have.

2. Outstanding Debt (30%)

When it comes to credit cards and other kinds of revolving credit, another aspect taken into account when calculating your credit ratings is how much credit you utilise relative to your allotted limit.

3. Credit History (15%)

This is the length of time your credit accounts have been open. In other words, your credit ratings are calculated using the age of your credit accounts. Longer payment history is advantageous, as someone with a long history of on-time payments demonstrates experience and responsibility when it comes to credit management. Conversely, judging someone’s creditworthiness when they have a limited credit history is challenging.

4. Public Documents (10%)

Bankruptcies, collection troubles, liens, lawsuits, and other negative public records are examples of public records. Having these public records on your credit report can hurt your credit score significantly.

5. Inquiries (10%)

This request is documented on your credit report every time a creditor or lender accesses your credit file in order to extend credit to you. This is known as a credit inquiry, and this form of inquiry is also known as a “hard draw” or “hard check.” This is because a creditor’s query can affect how your credit ratings are calculated. Consumer consent is required for all hard credit queries.

Credit Rating

Every account that appears on your credit report gets its own credit score. Every credit score is based on how well you handled the account’s payments. Every item in your credit history is given a score by the Canadian credit bureaus.

Where To Find Your Credit Rating

You can access your credit report and credit scores for free or for a cost, depending on the method you use.

Canadian Credit Bureaus Provide Free Credit Reports and Credit Scores

  • Equifax: Equifax gives Canadians free access to their credit record and credit scores. To use it, you must first create an online account.
  • Transunion: When Canadians pay a price for Transunion’s Credit Monitoring service, they get their credit report and scores for free. Transunion, on the other hand, provides your Consumer Disclosure for free every month. According to consumer reporting laws, this includes all of your credit report information. The Quebec Credit Assessment Agents Act (“CAAA” or “Act”) allows residents in Quebec to view their credit scores for free through Transunion. Residents of Quebec can request a copy of their consumer disclosure by mail or in person for free.

Furthermore, Canadians are entitled to free credit reports from both credit bureaus in Canada. To do so, fill out a form from Equifax Canada or TransUnion Canada to obtain your free credit report. Your report will then be mailed to you.

Credit Unions And Banks

Clients of certain banks and credit unions have been given access to their credit ratings via their banking accounts. It’s crucial to note, however, that these credit scores may differ from those reported by credit agencies. Furthermore, the credit ratings displayed may not be the same ones used by lenders to make lending decisions.

How Does The Credit Reporting System Work?

As previously stated, TransUnion and Equifax are the two credit bureaus that provide credit reports in Canada. Your credit scores are calculated using information from your credit report, which you can obtain upon request. Lenders, insurers, and other institutions receive credit reports from the reporting companies in order to assess your creditworthiness.

Here’s how the system works in practice:

Getting A Credit Card

When you apply for a new credit card, one or both of the major credit bureaus will request a copy of your credit report. Before a creditor may check your credit, you must give your permission.

The Lender’s Evaluation

Your credit file, as well as any other information you supply (such as income or debt information), may be used by the lender to determine whether to approve your request and what interest rates to provide. You may not be authorised if you have a low credit score and a poor payment history. Your chances of being accepted rise if you have a strong credit history. If you have no credit history and are applying for your first credit card, the process will be substantially more difficult because creditors will have no way of determining your likelihood of making timely payments.

 The Lender’s Decision

When you get a credit card, the creditor reports your account to the credit bureaus (either one or both) and keeps it updated every 30 days or so. Your balance and payment activity are among the newly updated details.

Your Credit Report Updated

As fresh information from creditors and lenders arrives, the credit bureaus revise and update your credit reports (for example, are you late on payments and by how much?). The procedure will repeat itself the next time you apply for a credit card or other credit product.

Checking your credit and understanding what influences your credit scores is a vital component of a healthy financial life for the ordinary Canadian consumer. Understanding the rating system can only make the process more instructive if you’re going to get a free copy of your credit report from one or both of the credit bureaus.

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