YOUR CREDIT

An individual's credit score, along with his or her credit report, affects his or her ability to borrow money through financial institutions such as banks or mortgage lenders.  Your credit history is the major determining factor for your approval, interest rate and loan amount.  Ensuring that your credit is in good shape will provide peace of mind and save you thousands of dollars over your lifetime. 

The following is a breakdown of what things impact your credit score and what the items on your credit report represent.  The impact of any one item on your credit score is virtually impossible to predict however the ability to manage your individual ratings is up to you.  Be sure to make payments on time and never be delinquent with your accounts.

 The following isTT

Factors that may influence a person's credit rating

•  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/credit cards?) 
• Do you have any collection items, a bankruptcy, or any judgments 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?); this carry over balance should not exceed 70% of 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?)

Credit Scores

Equifax and TransUnion collect credit information in Canada. The most common form of this analysis is a three-digit credit score provided by independent financial service companies such as the FICO credit score. The term FICO is a registered trademark that comes from Fair Isaac Corporation, which pioneered the credit rating concept in the late 1950s. The credit-reporting agencies Equifax and TransUnion use a scale from 300 to 900. High scores on this scale are good. Equifax uses a score called a 'Beacon' or 'Pinnacle' score and TransUnion uses an 'Empirica' or 'Precision' score.

Credit Ratings

In Canada, credit-reporting agencies report the lenders' rating of each of your credit history items on a scale of one to nine. A rating of one means you pay your bills within 30 days of the due date. A rating of nine means that you never pay your bills at all, or that you have made a consumer debt repayment proposal to the lender. A letter will also appear in front of the number: for example, I2, O2, R1. The letter stands for the type of the credit you are using.

• "I" means you were given credit on an installment basis, such as for a car loan, where you borrow money once and repay it in fixed amounts, on a regular basis, for a specific period of time until the loan is paid off
• "O" means you have open credit such as a line of credit, where you borrow money, as needed, up to a certain limit and the total balance is due at the end of each period. This category may also include student loans, for which the money may not be owing until you are out of school
• "R" means you have "revolving" credit, where you make regular payments in varying amounts depending on the balance of your account, and can then borrow more money up to your credit limit. Credit cards are a good example of revolving credit

The most common ratings are "R" ratings which refer to revolving credit types such as credit cards. An "I" rating refers to installment types of credit or loans. These are known as North American Standard Account Ratings and are the most frequently used. The "R" indicates that the item being described involves revolving credit. If you always pay on time, it will be coded an R1. If an amount was written off because you never paid it back, it is coded R9. The "R" ratings are a coding system that translates "on time", "one month late", "two months late", etc., into two-digit codes.³