We all use credit, and we all rely on it. Some of us manage it well. Others, not so much. In order to access credit, however, you must prove you’re a trustworthy borrower. And to make that happen, it’s important to build a good credit history so you can create a solid credit score. But the first step is to check your credit score in Canada. Because otherwise, how will you know where to go if you don’t know where you are today?
Whether most of us know what a good credit score looks like in actual terms is another story. What do potential creditors consider a good score? Is there a point of no return from bad credit? And is there such a thing as a magic number to strive to attain?
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To clarify, the only way to know for sure if your credit is strong, and what steps you might need to take to repair is, is to first understand what your actual credit score is. You can’t change what you don’t acknowledge.
Why It’s Important to Check Your Credit Score in Canada
You can’t easily fix what’s broken if you are in the dark about what your score means. And a credit score is something you want to make sure accurately reflects your reliability. Therefore, having a good credit score enables you to get a cellphone, a car, and a house. And even if you don’t intend to ever purchase a home, or it is way down the line, a poor credit score looks bad to potential landlords.
Credit bureaus, like Equifax and TransUnion, provide access to your credit report. So it’s worth spending the few dollars it costs for a quick credit score check at least once a year. Once you receive your report, check your score and go through it to review all of the credit you have ever had access to. Then, highlight the credit that hits your score the hardest and takes stock of how many times you apply for and used credit. While you may think you know your activity, when it’s all listed and spelled out, it’s harder to ignore the reality of your spending and debt usage.
Now, let’s talk about how to access and check your credit score in Canada.
How To Check Your Credit Score Online
You are entitled to access to your credit report. But depending on where you attempt to access it, it may come with a fee. Therefore, it is best to check with both major credit bureaus, Equifax and TransUnion. To check your credit score in Canada, make sure to have your personal identification handy because you will be asked for it. Then, head right to the source and visit Equifax or Transunion. The cost of immediate access to your report is around $25.
If you want to check your score online, for free, there are four available services in Canada. Borrowell, Mogo and Rate Hub give you free access to your Equifax credit score. Credit Karma gives you free access to your TransUnion credit score. Increasingly, banks, including CIBC and Royal Bank, allow you to see a snapshot of your credit score if you have an account with them. And if your bank doesn’t yet offer this option, this may be a future feature.
What Is Credit Monitoring?
Credit monitoring is an optional service you can pay for. It protects you from the effects of fraud and identity theft. For a fee, the credit agency with whom you sign up with will actively monitor your credit and alert you to any suspicious activity on your account.
The benefit is that you know if your accounts are comprised, and can take immediate action. But the downside is that it doesn’t come cheap. Monitoring services start at around $15 a month and go up from there. And they also won’t protect you being the victim of fraud. Instead, they alert you after the fact.
Credit Bureau Canada: How to Check Your Credit Score
Consult the credit bureaus to find out your credit score. It’s helpful to have a basic understanding of what they do and how they compile your score. A credit bureau gathers and analyzes information from financial institutions and courthouses to determine your reliability as a creditor. Then, this information is compiled into your credit report to determine your credit score.
Equifax Canada is based in Toronto, Ontario, and is one of the two major agencies that provide information and reports from credit bureaus. Originally founded in the late 1800s in Atlanta Georgia, Equifax came to Canada early in the 21st century. The agency uses technology and access to your credit bureau information to create a credit score that creditors use to determine a consumer’s trustworthiness as a borrower.
TransUnion Canada is based in Burlington, Ontario. Like Equifax, it uses proprietary technology to draw information from the credit bureau to provide potential lenders with a credit score. Also like Equifax, TransUnion was founded in the U.S. Its headquarters are in Chicago, Illinois.
How the Agencies Calculate Your Credit Score in Canada
While both reporting agencies do the same thing, there are some key differences. Therefore, it is worthwhile to get both reports.
While they both have the same objective, the way the reporting agencies determine your credit score is different. This can make the scores from each agency quite different. Therefore, it’s important to review both and see how they calculate your credit score. Equifax uses a Risk Score while TransUnion uses the CreditVision Scoring model.
The Equifax Risk Score produces a number based on a “rank-ordered risk perspective.” This method predicts the chances of delinquency on payments in the next two years. TransUnion’s CreditVision, however, uses data trends to create an assessment of your overall credit risk.
The amount of historical data each agency uses in the calculation also varies. Equifax’s calculation includes information from your credit history dating back 81 months. However, TransUnion only looks at the previous 24 months.
Checking Your Credit Score: Lenders Reporting
The information used by the reporting agencies is only as good as the creditors who report to them. While some creditors report to both Equifax and TransUnion, some only report to one. Therefore, to get a fulsome view of your credit report and credit score, and to see a representation of all lenders, you need both reports.
What Will Your Credit Report Show You?
Now that you know how to check your credit score in Canada, it is important to regularly check your credit report to make sure there is nothing in there that shouldn’t be. These errors can negatively impact your overall credit score. Also, it’s helpful to see the effects of your spending and borrowing and have full visibility of your credit activity.
Your credit report includes any bounced cheques or NSF payments. It also shows if creditors closed your accounts due to a lack of payment or fraud. And if you miss payments, this also shows up on your credit report as 30, 60 and 90 days late.
Your credit report also reflects all of your credit, including credit cards, loans and lines of credit.
According to the Government of Canada, you can expect to see the following items on your credit report:
- non-sufficient funds payments, or bad cheques
- chequing and savings accounts closed “for cause” due to money owing or fraud
- the credit you use, including credit cards, retail or store cards, lines of credit and loans
- bankruptcy or a court decision against you that relates to credit
- debts sent to collection agencies
- inquiries from lenders and others who have requested your credit report in the past three years
- registered items, such as a lien on a car that allows the lender to seize it if you don’t make payments
- remarks, including consumer statements, fraud alerts and identity verification alerts
Factual information about your credit cards and loans, for example:
- when you opened your accounts
- how much you owe
- whether you make payments on time
- if you miss payments
- when and if the debt was transferred to a collection agency
- how much you go over your credit limit
- personal information that’s available in public records, such as a bankruptcy
What Does Your Credit Score Mean?
There is a credit score range, and your number falls somewhere within it. The lowest possible score is 300 (so you’re not starting at zero!). On the other end, the highest possible score is 900. Depending on who you listen to, different scores are considered ‘bad.’ Some suggest anything below a score of 650 is poor. Others consider 574 as the low-end benchmark. With a score in that range, you’re going to find creditors think twice about lending money. A score below that threshold suggests you are not reliable when it comes to managing credit.
What Is A Good Credit Score?
Many people think a score of 800 is the golden ticket to freedom and anything below that isn’t good. Truthfully, 800 is hard to achieve and most Canadians fall comfortably into the 600 to 750 range. Any score within that ballpark is considered ‘good’ in Canada.
Why Do I Have A Bad Credit Score?
Many factors can, and will, contribute to a less-than-stellar credit score.
Poor Credit Card Management
Having several credit cards with high credit limits and consistently high balances negatively affects your credit rating. However, the more credit room you have, the more favourably credit agencies consider your credit management. In other words, it looks good if you have access to credit you aren’t using. But if you don’t pay down your cards consistently and on time, or if you only pay the minimum amount, it suggests to credit agencies that you are a risk.
You’ve Been Sent to Collections
This is a surprise to a few people, but going to collections hits your credit report, hard. Collection agencies specialize in collecting debts on defaulted loans from borrowers. They act on behalf and at the behest of creditors who extend credit they cannot recover on their own.
Collections agencies come into play after multiple missed payments and multiple warnings that a borrower settles unpaid debts. And the second you default on your payments to the point collections come in, you’re telling credit agencies you aren’t reliable, and they might not get their money. Therefore, your credit score warns them of exactly that.
Defaulting On Loans
If you take out loans and miss payments, your credit score suffers. Much like a bankruptcy, it takes up to seven years to repair the damage to your credit score if your loans aren’t paid back.
How Bankruptcy Affects Your Credit Score
If you are in way over your head and can’t afford to pay off your debts, and you exhaust all other avenues, filing for bankruptcy may be your only course of action. This is typically a last resort for good reason. That’s because it takes seven years for your credit score to recover from bankruptcy. After that, you need to start rebuilding your credit history, and your credit score.
Why It’s Important To Check Your Credit Score in Canada
Checking your credit report on an annual basis has two benefits.
Know What You’re Spending
First, you have at your fingertips a real look at your spending over the year. You can see where you used credit and how it affects your credit score. In other words, if there are efforts you need to take to get control of your spending and credit use, your credit report will highlight that.
Fix What’s Broken
By checking your credit score, you can pinpoint any errors that are negatively impacting your score. It’s surprising how often a simple clerical error can make its way to the bureau and hurt you.
One important thing to note is how many times creditors make inquiries. Every time a potential creditor asks to look at your score for their purposes, it affects your credit. If you see an inquiry in your report that shouldn’t be there, let the bureau know.
How to Check Your Credit Score in Canada
Your credit score is your key to getting access to credit when you need it most. And managing your debts and creating a healthy credit history is the best way to make sure that, when the time comes, creditors consider you a reliable borrower. And to make sure you are on the right track, it’s important to check your credit score annually.
If you want to know how to check your credit score in Canada, review the suggestions listed above. Understanding your score and reviewing your report are the best ways to know if you’re on the right track. You need to know where you are going.