A credit rating or score (also called a Beacon or a FICO score) is not part of a regular credit report. Basically, it’s a mathematical formula that translates the data in the credit report into a three-digit number that lenders use to make credit decisions.
|Factors in determining a credit score:
|Payment history. A good record of on-time payments will help boost your credit score.Outstanding debt. Balances above 50 per cent of your credit limits will harm your credit. Aim for balances under 30 per cent.Credit account history. An established credit history makes you a less risky borrower. Think twice before closing old accounts before a loan application.Recent inquiries. When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.
|Source: TransUnion Canada
The numbers go from 300 to 900. The higher the number, the better. For example, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. That means that anyone with this score is very likely to get that loan or mortgage they’ve applied for.
What are the cutoff points? TransUnion says someone with a credit score below 650 may have trouble receiving new credit. Some mortgage lenders will want to see a minimum score of 680 to get the best interest rate.
The exact formula bureaus use to calculate credit scores is secret. Paying bills on time is clearly the key factor. But because lenders don’t make any money off you if you pay your bills in full each month, people who carry a balance month-to-month (but who pay their minimum monthly balances on time) can be given a higher score than people who pay their amount due in full.
This isn’t too surprising when you realize that credit bureaus are primarily funded by banks, lenders, and businesses, not by consumers.
How can I get a copy of my credit report and credit score?
You can ask for a free copy of your credit file by mail. There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You should check with both bureaus.
Complete details on how to order credit reports are available online. Basically, you have to send in photocopies of two pieces of identification, along with some basic background information. The reports will come back in two to three weeks.
The “free-report-by-mail” links are not prominently displayed — the credit bureaus are anxious to sell you instant access to your report and credit score online.
For TransUnion, the instructions to get a free credit report by mail are available here. For Equifax, the instructions are here.
If you can’t wait for a free report by mail, you can always get an instant credit report online. TransUnion charges $14.95. Equifax’s rate is $15.50.
To get your all-important credit score, you’ll have to spend a bit more. Both Equifax and TransUnion offer consumers real-time online access to their credit score (your credit report is also included). Equifax charges $23.95, while TransUnion’s fee is $22.90. There is no free service to access your credit score.
You can always try asking the lender you’re trying to do business with, but they’re not supposed to give credit score information to you.