Interpreting your Credit score in Canada

I thought I would do some research and make some observations on what the score actuallyis in Canada. This will expand on my brief blog the other day for those that want to know more about it.

The system of credit reports and scores in Canada is very similar to that in the United States. Reporting agencies active in Canada are Equifax and TransUnion. Trans Union entered the Canadian market with the purchase of Northern Credit Bureaus in 2008, which closed its Canadian operations April 18, 2009.

There are, however, some key differences. One such difference is that, unlike the United States, where a consumer is allowed only one free copy of their credit report a year, in Canada, the consumer may order a free copy of their credit report any number of times in a year, as long as the request is made in writing, and as long as the consumer asks for a printed copy to be delivered by mail.

This request by the consumer is noted in the credit report, but it has no effect on their credit score. This is important as you need to understand that every other inquiry into your Credit whether it be a Chartered Bank or a company like GMAC or WFFG will affect your score.

 According to Equifax's ScorePower Report, FICO scores range between 300 and 900. To explain this better, lets take a coin toss for example. If you were to toss a coin there is a 50-50 chance for heads or for tails. If your credit score spits out a 500 score, you would be a 50-50 chance on making your payments on time. This is a scary thing for a potential mortgage lender and this is why credit is important in the whole picture of Lending. The average score is about 620 - 650 with an excellent score being anywhere above 700.

The Government of Canada offers a free publication called Understanding Your Credit Report and Credit Score. It will give you a sample credit report and credit score documents, with explanations of the notations and codes that are used. It also contains general information on how to build or improve credit history, and how to check for signs that identity theft has occurred. The publication is available online if you follow this link http://www.fcac-acfc.gc.ca/eng/publications/CreditReportScore/UCreditReport-eng.asp

The specifics of how each FICO system crunches its data are kept secret, but enough has leaked out that we know certain factors weigh heavily in computing your credit score. Many of these factors you have direct control over, so it is possible to influence your score positively. It is also quite possible to raise your score 100 points in a calendar year if you are diligent and have a plan.

What's important:

• Your payment history
• The amount of debt you owe
• What type of debt it is - car or home loans, credit cards, store charges
• How much new credit you have and your credit limits
• How long your credit history is
• The amount of debt you have in relation to your total credit limits

Of lesser weight:

• Education level
• Home ownership
• Stable address
• Years of employment

Here is a simple pie chart that outlines and puts a numerical value on each portion of your score.

• 750-850   Excellent - you'll get any loan with the very best terms
• 700-749   Very good - you qualify for highly competitive interest rates
• 650-699   Good credit
• 600-650   Fair
• 550-600   Poor

Until next time....

Kevyn