Keeping score on your credit score
The answers to the questions all Canadians are wondering
Every adult Canadian has a credit score — but not everybody understands exactly what this three-digit number means.
How do you find it? How it used? What do you do if it’s low? The questions abound, and it’s not always easy to find the answers. Yet knowing your credit score is important — and could one day prevent you from being denied a loan because you are the unknowing victim of fraud.
Here are the answers to questions that all Canadians should be aware of. What is the difference between credit score and credit report or file?
While it may seem like these are similar things, they are actually quite different, says Natasha Nystrom of the Financial Consumer Agency of Canada.
“A credit report is a record or a history of your past and your present use of credit cards and other loans. It can sometimes include bill payments like cellphone bills or hydro so it’s really a full history of your use of credit,” she explains.
“Your credit score is a number calculated from this information that indicates a risk that you might re- present to a lender compared to other consumers based on your use of credit.” How do I obtain my credit report and credit score?
Every Canadian can get their credit report for free at any time from one of the country’s two credit reporting agencies, TransUnion Canada or Equifax Canada. You can go in person, phone, or print out a form on the website and submit it with multiple copies of photo ID, then wait for your file to be mailed. One thing that’s important to note is that if you just order your basic credit report it will not include your credit score. You need to pay a small fee to obtain this information, and you need to make sure you request it in addition to your credit report. I found my credit score and report — but what do they mean?
A credit score will be a three-digit number between 300 (being a poor score) and 900 (a great score). In general, 700 would be considered a good score. Conversely, each type of credit in your credit report is rated with a letter and a single number, such as M1. The letter represents the type of credit being assessed (M stand for mortgage, for example), and the number from 0 to nine rates your payment history. Do I have just one credit score?
“That’s the really confusing thing: you can have multiple credit scores and they can all be right,” Julie Kuzmic of Equifax Canada says.
Different lenders use different scores and versions of scores, she adds, so there isn’t just one credit score for every person — there are different scores and different ways of calculating it.
“For example, it’s possible for you to walk into a credit union and be told your score is high, then walk next door into a major bank and be told your score is low,” Kuzmic explains. How is this information used?
The intention of a credit score is to help a lender assess the likelihood the consumer will repay debt, said Kuzmic. There are two types of inquiries that can occur, soft and hard.
Hard inquiries are ones that occur at the time of actively looking for credit, such as applying for a new credit card, a mortgage or a car. Soft inquiries occur when a credit file is accessed but it’s not really a credit-seeking situation — such as looking to rent an apartment and the landlord wants to know your credit history. In both cases, you would need to give consent before the information would be accessed. Soft inquiries, which include checking your own score or history, do not show up or detract from your credit score. However too many hard inquiries could bring you down, as making quite a few inquiries over a short period of time demonstrates you really need credit and might be living beyond your means.
“There’s a huge misconception out there that you shouldn’t check your own credit file very often because it’s going to bring down your score — but that’s not true,” Kuzmic adds. Why is it important to know my credit score? Besides being aware of the strengths and shortcomings of your credit history, a credit score is also a very good to tool to see if someone has tried to put fraudulent charges in your name — or even tried to steal your identity.
“We advise all Canadians to check their credit files at least once a year with both of the credit reporting agencies in Canada, because the information could vary a little bit between the two agencies,” Kuzmic says, noting simple errors can sometimes occur. “It’s a really good idea to make sure there’re no signs of anything unexpected there that could end up affecting you at a stressful time, like if you’re applying for a loan or a mortgage or something and get a big surprise.”
Here are some of the experts’ top tips on how to turn your credit score around. Pay your bills on time: Can’t make the full payment? At least pay the minimum amount stated on your bill. Use less credit than you have available: This may come as a surprise to people, but using less than 35 per cent of your available credit demonstrates you’re not completely maxed out on all of the credit products that you have — and can increase your score. Keep old accounts: Consider keeping an older account open even if you no longer use it, because this demonstrates you have good standing over a longer period of time. Don’t apply for tons of credit: If you are opening too much credit or too many credit products at one time, that’s a signal that you’re not doing that well — and it can cost you in your credit score. Mix it up: Your score may be lower if you only have one kind of credit, so it can be good to mix it up. For example, having a credit card and an auto loan is better for your score than just a credit card alone. But be careful — too much credit will decrease your score. Money isn’t everything: Remember, a credit score isn’t a correlation to wealth, and rich people don’t necessarily have these great credit scores. Anyone who doesn’t pay bills on time will have a low credit score, regardless of the money in the bank.