When you begin shopping around for a mortgage the importance of your credit history and score becomes evident. Your credit score is an important piece that will determine what interest your mortgage agent will be able to offer you! It should be a priority because it can save you thousands of dollars! Take care of your credit and your credit will take care of you!
Whether you have had credit for a long time or are completely new and just beginning the reality is that you will have to at some time or another prove that you are a low enough risk for lenders to lend to. If you are just beginning to build credit a good way is by using a credit card.
A credit report is a quick look into your credit history. If you have taken a loan or used a credit card you will have a credit history. Financial institutions, trust companies, credit companies and grantors that give you credit may send information about whether or not you make your payments on time to a credit-reporting agency/bureau.
Credit bureaus collect information about you and how long it takes you to pay back money you have borrowed. This is called your credit history.
Credit lenders rely on a credit bureau to analyze an applicant’s current and past credit history in order to determine the likelihood of future repayment. This provides a fairly accurate indication of future repayment trends is provided.
The two most popular credit bureau agencies operating in Canada are Equifax and Transunion. You can request your credit report by mail for free but your score is not included. If you request your credit report online a fee is charged and your credit score is included.
You are the only person who can see your credit report. No one else can access the information in your report unless you allow it. Generally you would allow credit checks to organizations you are applying to credit for through. Usually you sign documentation allowing them to do so.
Included on your credit report is personal information such as: your name, current and previous address, S.I.N., phone number, date of birth, and previous employer. Financial information included is credit cards, lines of credit, loans and mortgages. Bankruptcies, court judgements and backed secured loans which are considered public records and debt that was referred to a collection agency for payment. A list of credit report inquiries: You, your lender, or any other authorized agent is also included which is usually used to determine if you are a credit seeker; someone who applies for a lot of credit.
The credit agency describes your credit history by rating it. A scale of 1 to 9 is used. 1 meaning that you pay your bills within 30 days and 9 meaning you have bad debt, never pay your bills, have been placed for collection or claimed bankruptcy. In front of the number there is a letter. The letter stands for the type of credit you are using. R means you have revolving credit such as a credit card, O means you have open credit such as a line of credit and I means you credit has been given on an installment basis.
Your credit score is a numerical representation of the your current and past credit. It can range between 300 representing the lowest and 900 representing the best rating.
The breakdown that is used to determine your credit score is the following:
35% – Payment history
30% – Amounts owed
15% – Length of credit history
10% – New credit
10% – Types of credit
If you have a credit score ranging between the following numerical representations lenders will see you as following risk:
Range / Risk
300-559 Very Poor/Poor
725-759 Very Good
Some Tips on Keeping a Good Credit Score
- Make your payments in the correct amount on or before the due date! This will have a positive effect on your credit score. Missing, late payments and judgements, bankruptcies, collections or other public records will have an unfavourable impact on a credit score.
- Keep you balance considerably lower than the available credit limit provided. If you have several accounts with high balances in relative to your available credit this may indicate that you are relying greatly on credit to meet his or her daily needs.
- Multiple credit inquiries can lower credit score so reduce the number of credit applications you make.
- Always maintain a credit history. You can use a credit card to build a good history.
- The best mix of credit is a combination of a store credit card and a major credit card such as a VISA or MasterCard. It is important not to have too many credit cards or store cards as that may negatively impact a credit score.
If you contact Equifax or Transunion and find that the information on your credit report is incorrect you may request that a correction be made. You will have to contact the institution that reported the activity and submit documentation proving financial resolution has been made to the credit bureau and they will remove it.
I have posted some excellent resources below:
Visit Industry Canada’s Office of Consumer Affairs web site:
Toll-free: 1-800-328-6189 (Canada)
Equifax Canada Credit Bureau
TransUnion Canada Credit Bureau
Tel: 1-866-525-0262 (except in Quebec)
Tel: 1-877-713-3393 (Quebec residents)