Debt Relief Experts
Your credit rating is a score assigned to you that tells a potential lender how much of a credit risk you are. Understanding a little about how your credit rating works can help if the process of rebuilding your credit. Here are 7 useful facts about your credit rating:
- Your credit report contains information about you and your credit transactions including basic personal information and your payment history as well as public information including whether or not you filed a bankruptcy, proposal or debt management plan. Your report includes information about when you opened your accounts, how much you owe, whether you make payments on time, if you miss payments, if you have accounts that have been sent to collection and whether you go over your credit limit. Credit history is provided by lenders to the credit bureau and is updated every 30 days. Information about your bankruptcy or proposal is provided by the Office of the Superintendent of Bankruptcy when you file and after your discharge or completion.
- You don’t have to pay for a copy of your credit report. By law, you can obtain your own credit report for free from Equifax or Trans Union. While you can get a copy of your credit report for free, you must pay to get our credit score. Here is a bonus tip: you are entitled to receive one free copy of your credit report (not including your credit score) each year. If you want to review your credit report more frequently, you could request your Equifax credit report now, and then your TransUnion report in six months, and continue alternating every six months with each credit bureau.
- Your report may contain errors. These errors can be about your personal information such as your mailing address or social insurance number but can also include errors about your credit account and payments details such as a debt that you’ve already repaid. It is very important to correct any errors on your report by providing supporting documents to the credit bureau through their dispute resolution process. The Equifax process can be found here and the TransUnion page can be found here.
- There are 6 basic factors that affect your credit rating:
- Payment history shows whether you pay your bills on time.
- Credit utilization is an indication of how much of your credit you use. Bumping up against your limit is bad for your credit score.
- Length of credit is how long you have had each account. The more (positive) experience you have with credit, the better your score.
- Stability: The longer you have lived at your current address, or have worked at your current job, the better your credit score.
- Type of credit will also influence your credit score. A healthy mix of accounts between credit cards, lines of credit and term loans will improve your score.
- Credit inquiries will also impact your score. The more ‘hard’ hits you have by lenders, landlords or employers the lower your score.
- Your credit rating might be different than the one your lender sees. A lender may order a credit report that is designed to meet their needs. They may put more weight on certain factors depending on the reason they are assessing your credit worthiness. In addition to there being two prominent credit reporting agencies in Canada, your lender has access to scores you do not such as your bankruptcy score.
- Limit the number of credit applications you make. If too many lenders inquire about your credit in a short period of time, this can have a negative impact on your credit score. Lenders, landlords or anyone assessing your credit can only request your credit report if you give them permission.
- If you have more debt than you should, make a plan to pay it down. If you can’t do that on your own, talk to a debt expert like a Licensed Insolvency Trustee to review your options.
Other factors that can have a negative impact on your credit score:
- Moving recently or frequently. The longer you live at a resident the better for your credit. If you are moving temporarily (for school or work), consider using a family member’s address as a permanent address.
- Changing jobs or employers often. Your credit rating is based on the perception that you have the ability to repay a loan. A long employment history has a higher correlation with credit repayment and thus will increase your credit score. Frequent job changes will lower your credit score.
What Credit Score Do You Need?
Both TransUnion and Equifax use a credit scoring system which gives you a number between 300 and 900. How both report these numbers differs slightly, however the higher your score the more likely you will be to qualify for credit at a good rate.
| Equifax | TransUnion |
| 300-560 = Poor | 300-599 = Very Poor |
| 560-659 = Fair | 600-699 = Poor |
| 660-724 = Good | 700-749 = Fair |
| 729-759 = Very Good | 750-800 = Good |
| 760-900 = Excellent | 801-900 = Very Good |
It is not, however, necessary to chase the highest score. Perhaps all you want is an unsecured credit card for daily use (which you will now pay off every month). If this is the case, you will need to achieve a score above 560 (600 for TransUnion). Achieving this objective can happen very quickly, without needing to work hard to build a better credit score.
If, however, you plan to purchase a car or apply for a mortgage then you will need to build a better credit score. This will take time but can be achieved through effective strategies to rebuild your credit.
Our infographic below summarizes some information about how your credit rating is determined and provides further tips on getting a loan after bankruptcy.
