Canadian banks and other financial institutions (just like in the U.S) have ways to determine your creditworthiness, and therefore the details of your loan, and one of those ways involves taking a look at your credit score.
But what is a credit score? It is a snapshot of your credit worthiness at a certain point in time, shown as a three digit number on your credit report, as compared to other Canadian consumers. It is calculated through a formula using the information on your credit report. For every positive transaction or record, you get points, and likewise, for every negative transaction or record, points are deducted. The final result indicates to Canadian lenders how responsible – or not – you are with regards to credit.
This number can affect whether or not you can actually get a loan, the amount you are allowed to borrow, the interest rate you get, your ability to rent an apartment, and even down to other aspects such as getting employment in Canada for certain types of work. Therefore, it is important to make sure that you have a good credit score, and if not, do what you can do to improve it.
You can find your credit score on your credit report. It contains your credit history, including credit details, banking and collections information, as well as personal information. You can get a copy, free of charge, of your report from a Canadian credit reporting agency such as Equifax or TransUnion.
Factors that affect your credit score include your payment history, any bankruptcies or collections made against you, any current debts, account history, the number of inquiries made on your report, and finally, the types of credit you have.
Canadian credit scores range from between 300 – 900, with 900 being the best score possible. More specifically, here’s what the credit score ranges mean to you:
- 300 – 559: Poor. Thankfully, only 4% of the Canadian population has a credit score in this range. Depending where you are in this range, you may not be able to get a mortgage, car loan, or even a credit card, or if you can get one, the amount of the loan will be small while your interest rate will be high.
- 560 – 659: Fair. About 10% of the population falls within this range. While you may avoid getting really high or even sub-prime interest rates and possibly obtain conventional financing, you may get it but only from certain businesses. You could also get a credit card, but it may not be secured, and it will have higher interest rates and a lower credit limit.
- 660 – 724: Good. If you fall within this range, like 15% of Canadians, you will be able to get a traditional car loan or credit card, although the terms may not be exactly what you were hoping for. You may also be eligible for either conventional or non-conventional mortgages, but the interest rates you are offered may not be what you wanted.
- 725 – 759: Very good. A decent 14% of Canadians falls within this range. You will be able to qualify for very low interest rates and other competitive offers, and will have an easier time doing so.
- 760 – 900: Excellent. Congratulations! You and 57% of all Canadians are within this range. In addition to the best rates, you may even receive discounts and special offers because of your extremely low credit risk.
Your credit score isn’t the only factor used to determine your creditworthiness, but since it is used, it is also worth knowing. Happily, your credit score number is not static. By taking control of your finances and becoming more responsible, you can increase your score until it reaches the level you desire. Good luck!
This is a guest post. Chase Sagum is a blogger covering Financial topics specifically Credit Repair, around the web.
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