What You Need To Know About Credit ScoresApr 08, 2018
The reason why you may be approved or declined for new credit might seem like a mystery at times, but it typically comes down to a few factors and one of them is your credit score. Canadians are accessing more and more credit, driving consumer debt levels to new records across the country. The problem is that many don’t know much about their credit score or even what’s on their credit report.
Two financial surveys on the topic, one from TransUnion in 2017 and another from Capital One in 2018, showed us that:
- 56 per cent don’t know how their credit score is calculated
- Only 4 in 10 actually know their credit score
- 7 in 10 know that identity theft can impact their credit score, but…
- Only 12 per cent use credit-monitoring tools to keep an eye on their credit.
What is on a credit report?
Your credit report shows a summary of:
- The amount, and all types of credit you have
- The length of time you have had these accounts
- Your track record in paying bills
Your credit report is updated on a regular basis by companies that lend you money, or issue credit cards (banks, credit unions, etc.), it may also include your credit score and credit rating. You can request a credit report at no charge once a year from either Equifax or TransUnion, but you may be charged if you want your credit score to be included.
What’s the difference between a credit score and a credit rating?
These two items are separate, but work together when a lender is looking at whether or not to lend you money. Your credit score will be a number between 300 and 900 determined by a few factors, and the higher the score the better.
Your credit rating, on the other hand, is a scale from 1 to 9 based on your payment history. Receiving a rating of 1 means you pay your bills within 30 days of the due date. A 9 means your debt has been sent to a collection agency, or that you have filled for bankruptcy. So in the case you’re striving to receive a lower rating, the easiest way to do this is by paying bills on time and seeking debt help when you can’t, in order to get your finances and bill payments back on track.
Do you only have one credit score?
The answer to this may come as a surprise, but you will have two credit scores. The reason for this is that there are two companies – TransUnion and Equifax – that are accredited agencies for tracking and report credit scores. They use different software and calculations to determine credit scores. There may be similarities in the scores, but in the end, they could be different based on the company.
Does your income affect your credit score?
Earning a higher income will definitely allow you to take steps to improve your credit score by paying off debt faster and on time, but it actually has no direct impact on your score. Financial lenders will use this information to help establish a debt-to-income ratio for your application, but when it comes to determining a credit score, this information has no impact.
Where can I learn more about my credit score and credit rating?
Improving your financial literacy around credit scores and credit ratings is an important step. We’ve gathered a few helpful resources that can take you on a deeper dive into the topic of credit scores and improving your credit:
- Understanding Your Credit Report and Credit Score Guide – Financial Consumer Agency of Canada
- 5 Easy steps to build good credit – Bridget Casey
- 12 Easy ways to increase your credit score – Stephen Weyman
- 7 Common credit score myths – My Money Coach