While a credit score is a simple shorthand for your creditworthiness, a credit report is a more complete overview of your financial history, and it’s one of the major tools a lender uses in determining whether or not to give you credit. Contained within your credit report is key identifying information like your address and social insurance number, your payment history with your creditors, a record of bankruptcies or any court judgments that would affect credit worthiness, a list of lenders or other parties that were authorized to look into your credit, and any banking or collections information.
Canadians are entitled to one free credit report per year (called a Consumer Disclosure) from either Equifax or TransUnion. Click here to apply for your free credit report from Equifax by mail, and click here to receive your free credit report from TransUnion either by mail or online. If you can’t wait a year for your free report from the credit bureau, Borrowell, a Canadian financial technology company and credit monitoring service, can give you free access to your credit score any time. I reached out to Borrowell’s CEO, Andrew Graham, to get his thoughts on the value of this new offering.
“Borrowell has recently launched free credit report monitoring. For the first time, Canadians are able to monitor important information in their Equifax credit report on a monthly basis for free online,” said Graham.
“Now more than ever, Canadians should keep a close eye on their credit and personal finances. We were proud to be the first company in Canada to offer consumers free access to their credit scores. This is a logical next step for us and gives our users a much deeper look into their overall credit profile, the same data used by many lenders, banks, cell phone providers and landlords.”
If you receive your credit report and discover any inaccuracies, inconsistencies, incomplete information or signs of fraud, you can dispute the information with the credit bureau.
What Is a Credit Rating?
A credit rating is a rating listed by some credit reporting agencies. It is an individual rating of each of your credit history’s items detailing the type of credit being used and how quickly payments are made. The ratings for each item on your credit history are expressed on a scale of 1-9: “1” means you paid your bill within 30 days of its due date and “9” means you never paid your bill or that you’ve made a debt repayment proposal with the lender.
Along with the number, you will see a letter assigned to each credit rating. The letter stands for the type of credit being used. There’s “I” for installment (e.g. a car loan), “O” for Open (e.g. a student loan) and R for revolving (e.g. a credit card).
What Factors Influence a Credit Score the Most?
There are many factors that influence a credit score positively or negatively. Equifax and TransUnion both have slightly different formulas for determining scores, but there are a few shared considerations evaluated above all else:
Payment History – 35%
Payment history is the most important factor influencing your credit score. Lenders want to see how likely you are to pay back the credit they are about to give you, and they figure it out by looking at how/whether or not you paid back your other loans and consumer credit.
Your payment history shows all of your consumer debt except for mortgages. It details whether you’ve paid each debt as agreed, whether payments have been deferred, whether the debt has been paid off entirely, whether payments have been late or whether you have any payments in collections. Bankruptcy filing and liens against you also fall into this category.
While the exact number of points that your credit score drops for each of the above infractions is shrouded in secrecy, a general rule is that the higher your credit score is to begin with, the more points you will lose for poor payment incidents. However, if your credit score is already low, you won’t lose as many points from new negative behaviors. For example, if your credit score is 780 and you have your first 30-day late payment, your score can drop 90-110 points (more if it’s over 30 days late). However, if your credit score is 680 and this is your third late payment, your score will only drop 60-80 points. Similarly, a foreclosure means a credit score falls 140-160 points if your original credit score was 780, but falls only 85-105 if your original credit score was 680.