In Canada we have two major credit reporting agencies, Equifax and TransUnion. These two agencies receive monthly updates from your creditors on payments made and any delinquencies. The creditors that report to Equifax and TransUnion would be your credit cards, loans and lines of credit, in addition to certain bills, such as telephone, cable, internet as well as some utility companies. Some mortgage companies would also report.
The information your creditors provide allows the agencies to create your credit report and credit score and this score and report are used by other creditors to determine if they want to offer you credit facilities, to lend you money, to determine how much they will charge you in interest and is sometimes used by employers and landlords to determine your reliability.
As you might be aware, Equifax and TransUnion are not government bodies but are independent businesses; therefore, you have the right to receive a free copy of your credit report. However, this free report does not contain the credit score, in order to receive a copy of your credit score you would need to purchase your credit report and score from the agencies. This can be done online at their respective websites: Equifax.ca and TransUnion.ca.
What is a credit report?
A credit report is a summary of your credit history. It contains factual information about your credit facilities, such as:
- when you opened your account
- the credit limit
- how much you owe
- whether you make your payments on time
- whether you miss payments
- whether you go over your credit limit.
Chequing and savings accounts that have been closed “for cause,” due to money owing or fraud committed by the account holder, can also be included.
What is a credit score?
A credit score is a three-digit number that is calculated using a mathematical formula based on the information in your credit report. You get points for actions that demonstrate to lenders that you can use credit responsibly. You lose points for things that show you have difficulty managing credit.
In Canada, credit scores range from 300 to 900 points, with 900 being the best score.
Lenders and credit reporting agencies produce credit scores under different brand names, such as Beacon (Equifax), Empirica (TransUnion) and FICO®.
Your score will change over time as your credit report is updated.
It is up to each lender to decide on what their lending guidelines are. For instance, major banks will have more stringent lending requirements and would normally require a higher credit score, of approximately 640 plus. Whereas, smaller less known lenders may be willing to lend with a score closer to 600, as long as you have the income to make the payments.
Lenders may also use your score to set your interest rate and credit limit. If you have a high credit score, you may be able to get a lower interest rate on loans, which can save you a lot of money over time.
While they are very important, credit scores are usually not the only thing a lender will look at when trying to determine if they are going to offer you credit. Often, they will also consider other factors, such as your income, job or any assets you own.