Your credit score
Your credit score is a three-digit number that comes from the information in your credit report. It shows how well you manage credit and how risky it would be for a lender to lend you money.
Your credit score is calculated using a formula based on your credit report.
Your credit score will change over time as your credit report is updated.
How a credit score is calculated
It's not possible to know exactly how many points your score will go up or down based on the actions you take. Credit bureaus and lenders don't share the actual formulas they use to calculate credit scores.
Factors that may affect your credit score include:
Lenders set their own guidelines as to the minimum credit score you need for them to lend you money.
If you have a good credit score, you may be able to negotiate lower interest rates. However, when you order your credit score, it may not be the same as a score produced for a lender. This is because a lender may put more weight on certain information when calculating your credit score.
Who creates your credit report and credit score
There are two main credit bureaus in Canada:
These are private companies that collect, store and share information about how you use credit.
Equifax or TransUnion only collect information from creditors about your financial experiences in Canada.
Some financial institutions may be willing to recognize a credit history outside Canada if you ask them. This may involve extra steps. For example, you may request a copy of your credit report in the other country and meet with your local branch officer.
Get your credit score
A lender will use your credit score to determine if they will lend you money and how much interest they will charge you to borrow it. Your credit score is a number calculated from the information in your credit report. It shows the risk you represent to a lender compared to other consumers.
Knowing your credit score before a major purchase, such as a car or a home, may help you to negotiate lower interest rates.
You usually need to pay a fee when you order your credit score online from the two credit bureaus.
Some companies offer to provide your credit score for free. Others may ask you to sign up for a paid service to see your score.
Always check to see if a website is secured before providing any of your personal information. A secured website will start with “https” instead of “http”.
Improving your credit score
Monitor your payment history
Your payment history is the most important factor for your credit score.
To improve your payment history:
Use credit wisely
Don't go over your credit limit. Use only a percentage of your available credit. Try to use less than 35% of your available credit.
If you use a lot of your available credit, lenders see you as a greater risk. This is the case even if you pay your balance in full by the due date.
To figure out how to best use your available credit, add up the credit limits for all your credit products.
For example, if you have a credit card with a limit of $5,000 and a line of credit with a limit of $10,000, your available credit is $15,000. Try not to borrow more than $5,250 at any time. This is 35% of $15,000.
Increase length of credit history
The longer you have a credit account open and in use, the better it is for your score. Your credit score may be lower if you have credit accounts that are relatively new.
If you transfer an older account to a new account, the new account will be considered new credit.
For example, some credit cards offer you a low introductory interest rate on your current balance if you transfer it to a new product. The new account you transfer the balance to would be considered new credit.
Consider keeping an older account open even if you don't need it. Use it from time to time to keep it active. Make sure there is no fee if the account is open but you don't use it. Check your credit agreement to find out if there is a fee.
Limit your number of credit applications or credit checks
It's normal and expected to seek credit every so often. When lenders and others ask a credit bureau for your credit report, it's recorded as an inquiry.
If there are too many credit checks on your report, lenders may think you're:
“Hard hits” versus “soft hits”
“Hard hits” are credit checks that appear on your credit report and count toward your credit score. Anyone who views your credit report will see these inquiries.
Examples of hard hits include:
“Soft hits” are credit checks that appear on your credit report but only you can see them. These credit checks don't affect your credit score in any way.
Examples of soft hits include:
How to control the number of credit checks
To control the number of credit checks on your report:
Use different types of credit
Your score may be lower if you only have one type of credit product, such as a credit card.
It's better to have a mix of different types of credit, such as:
A mix of credit products could improve your credit score, but make sure you can pay back any money you borrow. Otherwise, you could end up hurting your score by taking on too much debt.