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Credit Score: How It Gets Calculated (How to Check Your Credit)

Updated: Jul 1, 2021



When it comes to mortgage qualifications, there are several different factors that go into the lender’s decision to approve or decline an application. One important factor is your credit history, which lenders assess based on your credit report and credit score.


A credit report is a report based on your credit history, and how you have met your financial obligations. It is one of the main tools lenders use to decide whether or not to give you credit. This report contains information based on what you have done in the past, as well as listing your current borrowing activity. Lenders send the credit reporting agencies regular updates on your payment history—for example, when you applied for credit, if you make your payments on time, if you miss a payment, or if you have gone over your credit limit. Some information on your credit report is used to determine your credit score.


A credit score is a number that expresses your credit information at one point in time. It indicates the risk you represent for lenders, compared with other consumers, on a scale from 300 to 900. High scores on this scale are good. The higher your score, the lower the risk for the lender.


Good, Very Good, and Excellent Credit Scores

Equifax Canada notes “Although credit scoring models vary, generally, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good; and 760 and up are considered excellent.

Higher credit scores mean you have demonstrated responsible credit behaviour in the past, which may make potential lenders and creditors more confident about your ability to repay a debt when evaluating your request for credit.

Lenders generally see those with credit scores 660 and up as acceptable or lower-risk borrowers. Those with credit scores below 660 may be less likely to qualify for better loan terms. Those with lower scores who fall into the “poor” credit range (generally below 560) are more likely to have difficulty getting credit or qualifying for better loan terms.”


Here are some tips for improving your credit score:

  • Pay your bills in full and on time. At least pay the minimum amount shown on your statement. Set up automatic payments to ensure that your bills are paid on time.

  • Don't go over the limit on your credit card. Keep your balance low—below 35 percent of your credit limit if you can. The higher your balance, the more it affects your credit score.

  • Don't apply for credit too often. Too many lenders asking about your credit in a short period of time can lower your credit score.

  • Pay off your debts as quickly as possible.

  • Build a strong credit history. You may have a low score simply because you don't have a long credit record. You can improve your score by using a credit card—and paying it off on time every month.


Your Financial Position

Remember, knowledge is power - in this case, borrowing power!

It’s important to know your financial position, including the contents of your credit report, and your credit score. Get a copy of your credit report every year and correct any mistakes you find. If you believe that the information in your credit report is incorrect, contact the credit reporting agency and your financial institution. If the financial institution says that the information reported is correct but you are still not satisfied, you can submit a brief statement to the credit reporting agency. If the error came from your financial institution and the institution will not correct the error, you can file a complaint with the institution.

Many financial institutions and credit card companies provide monthly credit score updates as part of your banking or credit card package. You can get a copy of your credit report by mail, or online, check out the following credit reporting agencies for more information.


Equifax Canada

National Consumer Relations P.O. box 190, Station Jean-Talon, Montreal, Quebec H1S 2Z2 Toll-free: 1-800-465-7166

https://www.consumer.equifax.ca/personal/

TransUnion Canada

TransUnion Attention: Consumer Relations 3115 Harvester Road, Suite 201 Burlington, Ontario L7N 3N8 Toll-free: 1-800-663-9980

https://www.transunion.ca/personal/


Acknowledgements

The information provided within this post has been sourced from The Government of Canada, who provide valuable financial literacy services and information.



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