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Knowing your credit score is important for your overall financial health. Depending on your credit score and ranking, you receive low-interest rates and get approved for loans and other credit products. There are two different credit reporting bureaus in Canada: Equifax and TransUnion.
Each bureau has its own approach to determining scores. Usually, a credit company or lender will look at both your credit score and your credit report. Also, the other factors like employment, income, debt levels etc determine your creditworthiness. Know that you are the only one who can improve your credit scores. So, understanding your credit is much more important.
What is a Good Credit Score in Canada?
Credit scores of 660 or higher are considered good in Canada. Of course, there are numerous credit ratings and scoring models to choose from. This implies that what one lender considers to be a “good” credit score may not be the same as what another lender deems to be a “good” credit score. Furthermore, the credit scores that a lender sees are not the same as those that you may have. Furthermore, your Equifax credit scores may differ from your TransUnion credit scores.
Credit Scores in Canada and What They Mean
There is no universally accepted paradigm for what different credit ratings represent to different lenders and creditors. Credit scores of 760 may be considered great by one lender, yet scores of 780 may be considered excellent by another. It all depends on the scoring model a lender employs and how they employ it during the approval process. However, if you’re curious about the meaning of your credit ratings, here are some general rules to follow.
Credit Score Ranges in Canada
Excellent (760+): People with a 760 or higher credit score may qualify for the best interest rates available. They are also almost always authorised for a loan.
Very Good (Scores 759–725): This is regarded as nearly perfect, and people with scores in this range may still be able to get some of the greatest deals.
Solid (Scores 724-660): A person with credit scores in this range has good credit and will likely have a little issue getting new credit approved.
Fair (659–560): Scores in this range suggest a higher risk for the individual. It may be difficult to secure loans, and if they do, the interest rates will be higher.
Poor (Scores 559–300): Credit scores in this range may suggest that a person is having difficulty making timely payments or is still building their credit history.
Factors That Influence Your Credit Score Calculation
There are five major aspects that can influence credit score calculation. If you want to improve your credit, knowing what these elements are will help you build a strategy for developing good credit habits.
1. Payment History (35% of total)
One key component included in the computation of your credit ratings is how you handle your payments. This covers the number of accounts you have open, as well as all positive and negative information about them. For example, whether you pay on time or late, how often you pay late, how late the payments were, how much you owe, and whether any accounts are delinquent.
2. Outstanding Debt (around 30%)
Many credit scoring models consider how high your balance is compared to your entire available credit limit, which is sometimes referred to as a credit use ratio. Particularly in the case of revolving credit, such as credit cards and lines of credit.
3. Credit History (15%)
Your credit file contains information about the age of your credit accounts, which will affect how your credit ratings are calculated. The weight of this criteria varies based on the scoring methodology, but how long your oldest and newest accounts have been open is generally significant.
4. Public Documents (10%)
Bankruptcies, collection troubles, liens, and litigation are examples of public documents. These types of public records on your credit report could hurt your credit score.
5. Inquiries (around 10%)
An inquiry is recorded in your credit report when a creditor or lender investigates your credit file (because they are in the process of granting credit to you). Credit inquiries (also known as hard checks) might have an impact on how your credit scores are calculated.
Understanding Your Credit Report
Personal and financial information are both included in your credit reports. Your credit reports reveal both the bright and bad sides of who you are as a borrower. Checking it allows you to keep a watch on your accounts, ensure that there are no errors, and even avert the negative consequences of fraud. A credit report is your credit report card, and knowing how to read it will help you gain control of your credit and be prepared for any future financial demands.
What Information Does Your Credit Report Contain?
You may see any combination of the following information depending on which credit report you examine, Equifax or TransUnion.
- Name and date of birth are personal details.
- Previous and current addresses
- Previous and current phone numbers
- Social security number (SIN)
- Information about your driver’s licence
- Number on passport
- Employer (current and past)
Information on Credit
- Credit accounts and transactions, such as credit cards (both retail and corporate), personal loans, car loans, and credit lines
- Accounts for cell phones and the internet
- Creditors, lenders, landlords, and employers may make credit requests.
- Consumer proposals, consolidation, and debt management programmes are all options.
- Legal decisions
- In-process credit accounts
- Accounts that have been closed due to the account holder’s fraud
- Fraud warnings
- Verification of identity
What is a Negative Credit Score in Canada?
Your credit score in Canada might range from 300 to 900. If your credit score is below 560, certain lenders and creditors will consider you to have bad credit. While a poor credit score may limit your capacity to obtain inexpensive credit, it does not imply you are doomed. By lowering your credit utilisation ratio and paying your payments on time, you can improve your credit scores.
Is it possible to obtain a free credit score in Canada?
Consumers in Canada can obtain their credit ratings for free from a variety of sources. Equifax provides free credit scores throughout Canada, whereas TransUnion does so only in Quebec. Many big banks provide free credit scores to their customers. If your bank does not offer this service, a third-party supplier like Mogo, Borrowell, or Credit Karma can provide your score for free.
How can I raise my credit score in Canada?
Various credit ratings have different reactions. What helps you raise your score might not benefit someone else. As a result, always pay on time and maintain your credit utilisation ratio low by paying off your credit cards twice a month or raising your available credit limit.
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