Understanding your Credit Score
Keeping yourself aware of what is going on with your credit is very important.
Everyone who’s ever borrowed money to buy a car or a house or applied for a credit card or any other personal loan has a credit file.
Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million of us have credit reports. And most of us have no idea what’s in them.
Are there mistakes? Have you been denied credit and don’t know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions. And it’s free for the asking.
So what’s in a credit report?
You may be surprised by the amount of personal financial data in your credit report. It contains information about every loan you’ve taken out in the last six years — whether you regularly pay on time, how much you owe, what your credit limit is on each account and a list of authorized credit grantors who have accessed your file.
Each of the accounts includes a notation that includes a letter and a number. The letter “R” refers to a revolving debt, while the letter “I” stands for an instalment account. The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy.) For a revolving account, an R1 rating is the notation to have. That means you pay your bills within 30 days, or “as agreed.”
Any company that’s thinking of granting you credit or providing you with a service that involves you receiving something before you pay for it (like phone service or a rental apartment) can get a copy of your credit report. Needless to say, they want to see lots of “Paid as agreed” notations in your file. And your credit report has a long history. Credit information (good and bad) remains on file for at least six years.
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
Obtain your Credit Score
Credit Bureau agencies have various programs available for you to use in order to check your credit score on the spot or sign up for a credit monitoring service.