A credit score is a three-digit number, typically between 300 and 900, designed to represent your credit risk or the likelihood you will pay your bills on time. A credit score is calculated based on the information in your credit report.
The way your credit score is calculated and the contents of your consumer file may vary between the two nationwide credit reporting agencies (Equifax and TransUnion) in Canada. This is because not all creditors report to both agencies and there are different credit scoring models. So,while most creditors report to both, you may hold an account with a creditor that only reports to one or a creditor that doesn’t report to any. There are many different credit scores used by lenders, including credit scores provided by the two credit reporting agencies and credit scores are custom built and used by a specific lender.
Your Credit Report
Your credit report is a summary of your credit history.
Your credit report is created when you borrow money or apply for credit for the first time. Lenders send information about your accounts to the credit bureaus, also known as credit reporting agencies.
How a Credit Score Is Calculated
It is impossible to know precisely how much your credit score will change based on the actions you take. Credit bureaus don’t share the actual formulas they use to calculate credit scores.
Factors that may affect your credit score include:
- how long you have had credit
- if you carry a balance on your credit cards
- if you regularly miss payments
- the amount of your outstanding debts
- being close to, at or above your credit limit
- the number of recent credit applications
- if your debts have been sent to a collection agency
- any record of insolvency or bankruptcy
Lenders set their own guidelines on the minimum credit score you need for them to lend you money. If you have a good credit score, you may be able to negotiate lower interest rates.
Consent and Credit Checks
In general, you need to give permission or consent for a business or individual to use your credit report.
In the following provinces, a business or individual only needs to tell you that they are checking your credit report:
- Nova Scotia
- Prince Edward Island
Other provinces require written consent to check your credit report. When you sign a credit application, you allow the lender to access your credit report. Your consent generally lets the lender use your credit report when you first apply for credit. They can also access your credit at any time afterward while your account is open.
In many cases, your consent also lets the lender share information about you with the credit bureaus. This is only the case if the lender approves your application.
Some provincial laws allow government representatives to see parts of your credit report without your consent. This includes judges and police.
Why Your Credit History Matters
It Can Affect Your Finances
Financial institutions look at your credit report and credit score to decide if they will lend you money. They also use them to determine how much interest they will charge you to borrow money.
If you have no credit history or poor credit history, it could be harder for you to get a credit card, loan or mortgage. It could even affect your ability to rent a house or apartment or get hired for a job.
If you have a good credit history, you may be able to get a lower interest rate on loans which can save you a lot of money over time.
It Can Show Signs of Identity Theft
You can also use your credit report to check for signs of identity theft. This is something you should do at least once a year for both credit bureaus. Look to make sure someone has not tried to open credit cards or other loans in your name.
How Long Information Stays in Your Credit Report
A credit bureau can keep positive information in your credit report indefinitely, from when the report was created. The positive information kept in your credit report can improve your credit score.
In general, negative information stays in your credit report for six years. However, some information may remain for a shorter or longer period. Negative information in your credit report can hurt your credit score.
Typically, both Equifax and TransUnion remove a bankruptcy from your credit report six years after the date you’re discharged.
TransUnion removes bankruptcy from your credit report seven years after you are discharged in the following provinces:
- New Brunswick
- Newfoundland and Labrador
- Prince Edward Island
If you declare bankruptcy more than once, the bankruptcies will appear in your credit report for 14 years.
Your credit score can either be beneficial or drag you down and as such, you must do your best to maintain a good one. According to a 2017 article in the Chicago Tribune, a study by the Federal Reserve Board found that “…people with the highest credit scores were most likely to form long-lasting committed relationships and the bigger the discrepancy between a couple’s credit score, the more likely the relationship will end within the first five years.”
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