Learning About Your Credit Score in Canada

29 October 2015

If your future plans include applying for a mortgage, taking out a car loan or even simply opening up a new credit card account, they also include having a healthy credit score. Your credit score acts as a snapshot of your credit history, educating lenders’ decisions when determining the terms of your future loans. Having a higher score demonstrates your credit-worthiness, typically allowing you to borrow more money and pay less over the life of the loan.

Here’s how your credit score in Canada is determined:

We have two bureaus, Equifax and TransUnion. Both collect and organize a credit report for every Canadian who has ever applied for any kind of credit, from home loans to retail credit cards. A credit report includes information on all of a consumer’s accounts, including notice of late or missed payments. Then, various separate institutions use these credit histories to produce a score based on their own formulas. The most popular of these institutions is the Fair Isaac Company, which calculates its FICO score using a summary of all your credit accounts and payment history. The result is a score between 300 to 850. While FICO is the most widely used system, every borrower in fact has multiple credit scores that vary depending on which reporting bureau and formula an institution chooses to use.

The impact your credit score has on your finances can be profound, so it is important to protect your score and make sure it accurately represents your borrowing behaviour. Because your credit score is calculated from information on your credit report, it could suffer if you are a victim of credit fraud. Thieves who steal your personal or credit information may make charges on your cards, max them out or even open new accounts under your name, all activities that cause your credit score to suffer.

One way to detect and correct this fraudulent behavior before it can hurt your borrowing ability is to regularly check your credit reports. You are entitled to receive one free credit report from each bureau every 12 months‚ but this free report does not include a score. Also to check more frequently, you must pay for each subsequent look.

Signing up for a credit monitoring service‚ either with a credit bureau itself or through an independent service like Identity Guard‚ can make it easier to keep an eye on your credit files. Services like this can alert you if they detect certain activity that may indicate fraud, allowing you to act quickly to repair your credit score.