Your Credit Report And Credit Scores

Your credit record contains information reported by various lenders — including credit card issuers, banks and mobile phone companies — detailing when you opened your account, how much you owe, your payment history, if and how frequently you exceed your credit limit and whether your accounts have ever lapsed into collections.

It also reveals any bad cheques you may have issued, Bankruptcies or Consumer Proposals you may have filed, lender inquiries and registered items such as wage garnishments or liens on automobiles.

Frequently checking your credit report and understanding how each factor influences your overall credit worthiness is a fundamental part of having a healthy relationship with debt.

Person calculating their debt on a calculator and laptop with paper spreadsheets on the desk

Calculating Your Credit Score

Your credit score is a numerical representation of your creditworthiness. Ranging from 300 (poor) to 900 (excellent), a score of 650 is generally good enough to qualify for most credit cards, loans and lines of credit.

Each prospective lender will assign a two-part rating to your account based on either your TransUnion or Equifax credit report to determine your credit score and whether you are an acceptable credit risk.

The first part is a letter which indicates the type of credit:

  • R: Revolving (e.g. credit cards)
  • I: Installment (e.g. mortgages, vehicle financing, personal loans)

The second part is a rating which indicates how current you keep your account. This information generally remains on your record for six years — except for debt management options and creditor inquiries, which usually only appear for three.

Rating Description
1  Pays as agreed
2  31-59 days late
3  60-89 days late
4  90-110 days late
5  More than 120 days late
7  Payments through a debt management option (i.e. Consumer proposal, credit counselling, debt management program)
8  Repossession
 9  Written off as 'bad debt' or bankruptcy
Weighting Factors

Credit scores can often vary from creditor to creditor, as each institution has a proprietary formula which they use to calculate it. In most cases it will be within a close range, however these differences can still impact whether you’re eligible for credit, how much you’re eligible for and your interest rate.

Equifax identifies the following approximation of each factor’s impact:

Approx. Weighting   Factor
35% Payment History
  • How have you repaid your debts?
  • Have you honored the payment terms?
  • Have you missed or been late with payments?
  • Have your lenders taken collections actions against you? 
30% Used vs. Available Credit
  • Do you carry a monthly balance on your credit accounts?
  • How much of your credit limit do you generally use?
15% Credit History
  • How many credit accounts to you currently have open?
  • How long have your credit accounts been open?
  • How long have your credit accounts been in good standing?
10% Public Records
  • Do you have a prior history of Bankruptcy or Consumer Proposals?
  • Are there any other public records that may indicate a credit risk (e.g. liens, wage garnishment, court judgements, etc.)?
10% Inquiries
  • Hard Inquiries occur when you apply for new credit. Several of these within a narrow timeframe adversely affect your credit score.
  • Soft inquiries occur when you request a credit report or when existing creditors obtain a credit report update — these will not adversely affect your credit score.
  Other Factors

Creditors may also consider the length of time you've worked with your employer, how long you've lived at your current address and your income level among other miscellaneous variables.

Improving Your Credit Score

Maximizing your credit score is in your best interest for several reasons — and not all of them apply to credit limit increases, securing new debt or getting a more competitive interest rate. Many landlords will request a credit check on new tenants. And Canadian employers may legally review applicants’ credit scores as part of a full background check.

It’s also important to consider your future goals and aspirations: Will you want to purchase a house at some point? What if you want to purchase a new vehicle? The higher your credit score, the more opportunities you open yourself to.

The Financial Consumer Agency of Canada offers the following tips to improve your score:

Monitor Your Payment History

Your payment history weighs most heavily against your credit score. To improve your payment history:

  • Always make your payments on time
  • Make at least the minimum payment every month (ideally the full balance)
  • Contact the lender right away if you’re having trouble paying your bill
  • Never skip a payment — even if a bill is in dispute

Use Credit Wisely

Never exceed your credit limit and, if possible, try to limit your use to 35 percent or less of your available credit. The more you use, the greater risk your creditors believe you are — even if you pay your balance in full by the due date. 

To determine your optimal credit use, add the limits of all your credit products (including credit cards, lines of credit and loans) and multiply the sum by 0.35. 

For example, if you have a credit card with a $5,000 limit and a line of credit with a $10,000 limit, your available credit is $15,000. Try not to borrow more than $5,250 at any time ($15,000 x 0.35 = $5,250).

Increase Length of Credit History

Your credit score improves the longer you have a credit account open and in use. That means relatively new accounts will likely cause your score to decrease, even if you’ve transferred an older account to a new one — lenders consider the new account new credit.

For example, some credit card issuers may offer a low introductory interest rate on your current balance if you transfer it to a new product. Beware, the new account may be less expensive to you in the short term, but detrimental to your overall creditworthiness.

Consider keeping an older account open even if you don't need it. Use it periodically to keep it active and review your account agreement to ensure there are no service fees if the account is open but not in use.

Limit Your Credit Applications and Credit Checks

It's normal and expected to occasionally seek credit. However, if there are too many credit checks on your report, lenders may think you're either urgently trying to get credit or living beyond your means.

Every ‘hard hit’ that appears on your credit report will lower your credit score. Anyone who views your credit report will see these inquiries and likely view you as a greater risk. 

Examples of hard hits include:

  • Credit card and loan applications
  • New mobile phone or utility contracts
  • Some rental applications
  • Some employment applications

To control the number of credit checks on your report:

  • Limit your number of credit applications
  • When shopping around for a car or a mortgage, request quotes from several lenders within a two-week period — these will be combined and treated as a single inquiry
  • Only apply for credit when you really need it

Use Multiple Types of Credit

Using only one type of credit product, such as a credit card, may have an adverse effect on your credit score. Lenders view you more favourably if you have a variety of credit products such as a credit card, car loan and line of credit.

With that said, be mindful about using credit wisely — taking on too much debt or failing to make timely and complete payments is damaging to your credit score. So, never take on more debt than you can manage.

Checking Your Credit Report

Credit reporting agencies must provide a free copy of your credit report upon request. Check it periodically to ensure all information and records are accurate and up to date. You can contact Equifax online and directly at 1-800-465-7166 or TransUnion at 1-800-663-9980.

Report any erroneous information to the reporting agency immediately. Legally, they must respond to any concerns you raise. If you are not satisfied with how they handle your file, you may also file a complaint with the provincial ministry responsible for consumer matters.

Life-Changing Debt Solutions

If you’re struggling with overwhelming debt and worry it’s affecting your credit report and score, reach out to a Licensed Insolvency Trustee for a Free Confidential Consultation today.

Together, you will review your financial history, discuss your challenges and goals and identify opportunities for you to achieve a permanent financial fresh start. You may qualify for a Life-Changing Debt Solution, such as a Consumer Proposal or Bankruptcy. Or you may benefit from strategies and referrals that will help you defeat your debt for good.

No matter which direction you choose to go, your Licensed Insolvency Trustee will help you make the best decision for your unique situation — putting you on the path to financial wellness and ensuring your current roadblocks won’t get in the way of future opportunities.