Your Credit Bureau
Your Credit Score
What is a credit score?
Your credit score and rating are produced by Equifax. Your credit score is
also referred to as a FICO Score as the mathematical formulas behind your score
were created by Fair Isaac & Company (FICO). This Credit Score is used
by most lenders to help them decide whether or not you're a good credit risk.
Equifax crunches the numbers from your credit report, and spits out a score
somewhere between 300 and 850. A low score says you're a bad credit risk, a
score of 750 or higher puts you in the driverís seat.
Here are the factors considered when calculating your credit score and an
estimate of how heavily each factor might be weighted.
- Past payment history (35 percent): bankruptcies,
late payments, past due accounts and wage attachments
- Amount of credit owing (30 percent):
amount owed on accounts, proportion of balances to total credit limits
- Length of time credit established (15
percent): time since accounts opened, time since account activity
- Search for and acquisition of new credit
(10 percent): number of recent credit inquiries, number of recently opened
- Types of credit established (10 percent):
number of various types of accounts (credit cards, retail accounts, mortgage).
Below you will find the distributions of Credit Score for Canadians and a
brief explanation of the factors considered when calculating your credit score.
Or, Seen a Different way:
Understanding the graph: This chart shows the percentage
of people who score in specific FICO score ranges. For example, about 4%
of Canadian consumers have a FICO score between 550 and 599.
A score of 760 places you in the 750-799 range, along with 27% of the total population. (Note that
the score ranges shown above are provided for your information, but they
do not necessarily correspond to any particular lender's policies for extending
How Lenders See You:
A summary of factors that affect your credit score:
The FICO score is calculated based on the information contained in your Equifax
credit history. While knowing your actual score is a good start, understanding
the key factors affecting your FICO score is much more important. These factors
will provide you direction on how you can increase or maintain your FICO score
The negative factors listed below are reasons why your FICO score might mot
be very high. Your focus on these factors will help you to raise your FICO
score over time. These negative factors are provided in order of impact to
your score, the first factor listed indicates where you stand to gain the most
points over time and so on.
You have recently been seeking credit as reflected by the number of
inquiries posted on your credit file in the last 12 months
Research shows that consumers who are seeking new credit accounts are riskier
than consumers who are not seeking credit. Inquiries are the only information
lenders have that indicates a consumer is actively seeking credit.
There are different types of inquiries that reside on your credit bureau report.
The score only considers those inquiries that were posted as a result of you
applying for credit. Other types of inquiries, such as account review inquiries
(where a lender with whom you have an account has received your credit report)
or consumer disclosure inquiries (where you have requested a copy of your own
report) are not considered by the score.
The scores can identify "rate shopping" so that one credit search
leading to multiple inquiries being reported is usually only counted as a single
inquiry. For most consumers, the presence of a few inquiries on your credit
file has a limited impact on FICO scores.
A common misperception is that every single inquiry will drop your score a
certain number of points. This is not true. The impact of inquiries on your
score will vary - depending on your overall credit profile. Inquiries will
usually have a larger impact on the score for consumers with limited credit
history and on consumers with previous late payments. The most prudent action
to raise your score over time is to apply for credit only when you need it.
As time passes the age of your most recent inquiry will increase and your score
will rise as a result, provided you do not apply for additional credit in the
meantime. Our best recommendation - apply for credit only when you need it.
The length of time your revolving or non-revolving accounts have been
established is too short
This reason is based on the age of the revolving or non-revolving charge accounts
on your credit bureau report. A revolving account such as Visa, MasterCard,
or retail store card allows consumers to make a minimum monthly payment and
roll or "revolve" the remainder of their balance to the next month.
Non-revolving accounts such as American Express and Diners Club must be paid
off in full each month.
Research shows that consumers with longer credit histories have better repayment
risk than those with shorter credit histories. Also, consumers who frequently
open new accounts have greater repayment risk than those who do not.
It is a good idea to only apply for credit when you really need it. Meanwhile,
maintain low-to-moderate balances and be sure to make your payments on time.
Your score should improve as your revolving credit history ages.
The amount owed on your accounts is too high
The score measures how much you owe on the accounts (revolving, non-revolving,
and installment) that are listed on your credit bureau report. Research reveals
that consumers owing larger amounts on their credit accounts have greater future
repayment risk than those who owe less. (For credit cards, the total outstanding
balance on your last statement is generally the amount that will show in your
credit bureau report. Note that even if you pay off your credit cards in full
each and every month, your credit bureau report may show the last billing statement
balance on those accounts.)
Paying off your debts and maintaining low balances will help to improve your
credit score. Consolidating or moving your debt around from one account to
another will usually not, however, raise your score, since the same amount
is still owed.
Proportion of loan balances to original loan amounts is too high
Simply having installment loans and owing money on them does not mean you are
a high-risk borrower. To the contrary, paying down installment loans is a good
sign that you are able and willing to manage and repay debt, and evidence of
successful repayment weighs favorably on your credit rating. The FICO score
examines many aspects of your current installment loan and revolving balances.
One measurement is to compare outstanding installment balances against the
original loan amounts. Generally, the closer the loans are to being fully paid
off, the better the score. Compared to other measurements of indebtedness,
however, this has limited influence on the FICO score.
Paying down installment loans on a timely basis generally reflects well on
your credit score. But if you want to improve your score, one way to do it
is to try to pay the loans, down as quickly as you can.