Understanding your credit report and credit score

Credit is your attitude to pay, there are many factors which predict your credit score such as Balance on the trade line to the maximum limit, late payments, judgements, collections and off course inquiries by the creditors.

Your credit score is a judgment about your financial health, at a specific point in time. It indicates the risk you represent for lenders, compared with other consumers.
There are many different ways to work out credit scores. The credit-reporting agencies Equifax and TransUnion use a scale from 300 to 900. High scores on this scale are good.

The higher is your score, the lower the risk for the lender.

Lenders may also have their own ways of arriving at credit scores. In addition, lenders must decide on the lowest score you can have and still borrow money from them. They can also use your score to set the interest rate you will pay.

Credit-reporting agencies and lenders use a mathematical formula to figure out your credit score. This formula takes into account

Various factors described in your credit report, such as:

  • Your payment history (Do you carry over a balance on your credit card from month to month? Have you ever missed a payment on any of your debts?);
  • Any collection or bankruptcy recorded against you (Has a collection agency had to collect an unpaid bill from you? Have you ever been bankrupt?);
  • Your outstanding debts (What is the limit on your credit card? Is your spending close to your credit limit?);
  • Your account history (How long have you had credit?);
  • The number of recent inquiries made about your credit report (How many times has someone asked about your credit report?);
  • The type of credit you are using (Do you only have credit cards, or do you have a mix of credit cards and loans?).

Or in other words we can say payment history, outstanding debt, credit account history, recent inquiries and types of credit determine your credit score.

A perfect credit score is 900, but the average score for Canadians is around 700.Each institution has its own scoring model, which a lot of people don’t realize. Payment history simply tracks whether you make your payments on time or not.

Having too much debt is another thing lenders look for. Lenders want to know whether your outstanding debt—credit cards, mortgages, lines of credit, etc.—exceeds your ability to pay it off.

Note: This example is for illustration purposes only and may not include all information typically provided in a credit report or score. FCAC has modified the presentation for online display. This example may not appear in exactly the same way as the credit report or score you receive from a credit reporting agency.

Score summary as of 03/04/2012

This consumer has a credit score of 750 which is considered very good.

 

Where you stand

The Equifax Credit ScoreTM ranges from 300-900. Higher scores are viewed more favorably. Your Equifax credit score is calculated from the information in your Equifax Credit Report. Most lenders would consider your score very good. Based on this score, you should be able to qualify for some of the lowest interest rates available and a wide variety of competitive credit offers should be available to you.
Fourteen percent of consumers have scores in the same range as this consumer.

What’s impacting your score

Below are the aspects of your credit profile and history that are important to your Equifax credit score. They are listed in order of impact to your score—the first has the largest impact, and the last has the least.

  • Ratio of satisfactory trades to total trades in last 24 months.
  • Number of personal finance trades with high utilization in the last 3 months.
  • Worst rating for installment trades in the last 12 months.

 

 Your loan risk rating as of 03/04/2012

 

Your credit score of 750 is better than 52% of Canadian consumers.

The bottom line:

Lenders consider many factors in addition to your score when making credit decisions. However, most lenders would consider you to be a very low risk. You may qualify for a variety of loan and credit offers at some of the lowest rates available. If you’re in the market for credit, this is what you might expect:

  • You may be able to obtain high credit limits in your credit card.
  • Many lenders may offer you their most attractive interest rates and offers.
  • Many lenders may offer you special incentives and rewards that are geared to their most valuable customers.

 

It is important to understand that your credit score is not the only factor that lenders evaluate when making credit decisions. Different lenders set their own policies and tolerance for risk, and may consider other elements, such as your income, when analyzing your creditworthiness for a particular loan.