Credit Scores - The Real Deal

If you've been following my blog, you're probably well-versed in my thoughts on daily coffee expenditures. 


If you're unfamiliar, I'll fill you in now.  I don't discourage purchasing daily cups of coffee (Starbucks, etc.), so long as the decision to do so is truly in alignment with what's most important to you. 


If doing so leaves you unable to own a piece of what really matters in your life - like, an annual holiday - that's when I berate the daily cup of coffee.


Credit scores can lead to a similar line of thinking.  Focusing on the smaller details while leaving too little room for the bigger picture.  Some people cut back on daily splurges while ignoring their credit score.  One's credit score will have a much much bigger impact on overall financial health.  If you have to choose where to place your attention, I strongly suggest choosing your credit score.


Your credit score is a numerical measure of your credit worthiness.  It dictates the risk you pose to any potential lender.  And, as such, can dictate the percentage at which money is borrowed.  The higher you score, the safer you appear to any lender, and therefore, the lower the likely interest rate offered to you.


A strong score can equate to an aggressive borrowing percentage (interest rate) on a car loan, mortgage, line of credit, or credit card, saving you loads of money over the span of a lifetime.  So, while some spend time cutting out daily coffees, your time can be best spent boosting your credit score.


Here's What you Need to Know:


There are two main reporting agencies in Canada - they are TransUnion Canada and Equifax Canada.


Generally speaking, when you apply for a loan, the lender will request a report from one of these agencies. 


And, to my surprise, your credit report may also be requested when applying for certain jobs, renting a home, and renting a car.  It is really really really important to have a healthy credit score.


The credit report provides the following information to the lender:


  • Your credit score - the numerical representation of your credit worthiness.  This typically ranges from 300 to 900 with anything above 650 considered good, and;
  • Your credit history - the other credit products you currently have or have had, and your repayment history. 


It is HIGHLY recommended that you request your credit report twice a year.  If you request your credit report by mail through TransUnion, there is no fee.  If you want an instant electronic version through either reporting agency - you'll have to pay. 


Pulling your report twice per year will not only give you insight into your scoring, it is also a great way to ensure that any reporting is accurate and reflective of YOUR credit activities only.  This is a great method to watch for (not prevent) identity fraud.


To request your report by Mail, use the following link:




How is your Credit Score Determined?


I reviewed Gail Vaz-Oxlade's blog to get a sense of what exactly helps to determine one's credit score.  She points out the following factors::

  • Your age - those in working ages 21 - 64 receive more points for this
  • Martial status - those unmarried are considered higher risk
  • Kids - those with no kids, are less creditworthy
  • Home Address - live with parents or trailer park - lower score
  • Previous Residence - if you move around too much, lower score
  • Years on the Job - the longer the better
  • Type of Job - those with employment score better than those who have none, and those who are 'professionals' score higher than those considered 'skilled'
  • Your Monthly Income - the higher the better
  • Your Credit History - your track record of repayment history, as this is thought to predict your future behaviour
  • A Savings Account with a balance over $500 will earn some credit points
  • Having a phone in your name - creditors want to know they can reach you if you fall behind - how sweet!?


What specific factors can impact my credit score?


I found an amazing article on credit scores - it is slightly more in-depth than this article, so if you want to dive in, check it out:


Here are things suggest that might also impact your credit scoring:

  • Payment history
  • Delinquencies - do you pay on-time?
  • Balance to Limit Ratio - in other words, don't rack up your credit cards and lines of credit.  Each reporting agency (Equifax and TransUnion) have different views on this, but they both want to see 'room' left on your credit.  Best to have at least 50% of the credit available on any given credit product.  If you have a $5,000 credit card, best to have a maximum of $2,500 sitting on it.
  • Recent Inquiries - having your credit 'pulled' too many times can send a message of desperation and thus lower your credit score.  There are 'hard' requests for credit and 'soft' requests.  Those that are considered 'soft' do not impact your credit scoring.  If a lender asks for your permission to pull your credit - find out which one it is.  Be cautious of too many 'hard' requests in a short period of time.
  • Length or History of Accounts - reporting agencies see accounts that are too new as risky.  They prefer to see accounts which are 'older' giving them a better perspective on your historical credit history.
  • Variety of Accounts - having a mix of credit cards and loans is a good sign.
  • Too Many Accounts - having too many credit accounts - especially when they have balances on them will cause you to lose credit points.
  • Errors - reporting errors can wreak havoc on your credit score.  This might mean that a lender reports you as paying late when you paid on time.  Here are a few common errors:
    • Wrong mailing addresses
    • Incorrect Social Insurance Number
    • Signs of identity theft
    • Errors in your credit accounts
    • Late payments
    • Unauthorized hard inquiries
  • Having No Debt - seems counter-intuitive, but having debt (AKA credit) gives a lender the opportunity to see your repayment behaviour.  Without it, they have a harder time assessing your likelihood to repay.


In summary, your credit score and credit report are really really important.  It can affect your ability to rent a home, buy a home, rent a car, and even when applying for a job.  In addition, the prevalence of identity fraud makes it that much more crucial to keep checking your credit report.

Did this clarify your understanding of credit reporting and credit scores?  If not, what else do you want to know?