What is a credit score?
Your credit score is a three-digit numerical representation of your credit report that falls between 300 and 900. It is calculated by two different credit bureaus: Equifax and TransUnion. Each credit-scoring bureau uses different criteria for measuring your credit score, weighing your history against a proprietary algorithm.
The higher your credit score is, the better position you’re in to get approval for financial products with low interest rates and flexible terms.
Get your credit score
There are a few different ways to get a copy of your credit score – some are free and some cost a small fee.- Credit score services. There are many free credit score services that don’t require your credit card details. You can find many reputable companies online offering this service.
- A credit bureau. You can find out your credit score directly from one of the two credit bureaus: TransUnion or Equifax. You will likely have to pay a fee to access your score immediately, while sometimes these bureaus will offer a free copy of your report sent via the mail.
- Credit counsellors. If you’re in need of financial counselling, credit counsellors can provide you with a copy of your credit report and credit score free of charge.
- Your account statement. Some financial institutions list your credit score on your credit card or loan account statement. Check your statement to see if this is a service offered to you.
Why is my credit score important?
Lenders and credit card providers use both your credit score and the information in your credit report to make decisions about whether you’re a reliable borrower for credit cards, personal loans, a mortgage or auto loans — plus this information helps determine the rates you’ll receive. Knowing your credit score can tell you where you fall in the credit range, from poor to excellent, and how your overall financial health is viewed by potential lenders.
How is my credit score calculated?
You have two different credit scores and each one is calculated differently depending on the credit reporting agency (Equifax and TransUnion). In general, each of the factors below are what credit bureaus use to calculate your overall credit score.
- Your personal information. Your age, how long you’ve been employed and the time you’ve been at your current address can each affect your score.
- The age of your credit report. An extensive credit history that’s been active for a long time can improve your score.
- Your payment history. Whether you’ve paid past and current credit accounts on time is a major factor in your overall score.
- Your credit utilization ratio. Experts advise carrying a balance with a credit utilization ratio of 30% or less. For example, if your credit limit is $1,000, keep your balance below $300, which is 30% of your limit.
- Type of credit providers. Holding an account with a bank carries a different level of risk than a loan from an in-store finance provider.
- The number of listed credit inquiries. Frequent applications for credit raises your risk index and lowers your credit score.
- Liens and other judgments. Bankruptcies and other negative judgments can decrease your credit score.
5 credit score pitfalls
Avoid these five common credit mistakes that could potentially bring down your credit score:
- Having a credit utilization ratio of 30% or more.
- Missing or making late payments.
- Closing old credit accounts that have reported healthy activity to the credit bureaus.
- Not taking the time to monitor each credit report for inaccuracies.
- Making too many credit inquires at once.
What factors make up a credit score?
The two credit bureaus in Canada – Equifax and TransUnion – don’t give a specific breakdown of the exact factors that affect your credit score. However, they do provide a list of the seven main factors, which include:
- Payment history. Paying bills on time positively affects your credit score.
- Delinquencies. Declaring bankruptcy or having a collections agency come after you will damage your score.
- Balance-to-limit ratio. Running your balances up to your credit limit, or over 50% of your credit limit, can negatively affect your score. Try to keep your balance-to-limit ratio around 30% or less.
- Recent inquiries. Applying for new credit requires a hard pull, which means your score will take a temporary negative hit.
- History of accounts. The length of time that you’ve had your accounts open affects your credit score. The longer you have accounts open, the more positively your credit score will be impacted.
- Variety of credit accounts. Your credit score will be affected by the balance of credit card and loan accounts that you have. Having a mix of products positively impacts your score.
- Too many accounts. Having too many accounts is viewed negatively since this could be a sign of financial trouble.
What are the credit score tiers and ranges?
While not set in stone, the general credit tiers are as follows:
- Excellent credit score: 800-900
- Very good credit score: 720-799
- Good credit score: 650-719
- Fair credit score: 600-649
- Poor credit score: 300-599
Scoring systems will vary depending on where you’re getting your score from (Equifax or TransUnion). However, they’re all similar in that the higher the credit score, the better your chances are at being approved for credit.
What’s the difference between your credit score and your credit report?
- Your credit report is a detailed record of your borrowing history. Your credit report contains a list of the applications you’ve made for different forms of credit (whether they’ve been approved or not); your repayment history; details of any defaults you may have; and information about the personal and business accounts you hold. It also contains personal information including your name and age as well as data held on public record, such as bankruptcies.
- Your credit score is a numerical representation of your creditworthiness based off of your credit report. Your credit score is calculated by credit bureaus using the information on your credit file. Your score is a number between 300 and 900. The higher your credit score, the lower your risk as a borrower.
