Unimor Capital Corporation

Tag: credit bureau

  • What is a Good Credit Score?

    What is a Good Credit Score?

    Have you ever been surprised to find that you were turned down for credit, or that you had very little credit history at all? Even if your credit history is rock solid, it’s important to know what goes into determining your credit score. Understanding how your credit score is measured will help you improve it and keep it in good standing.

    What is a Credit Score?
    A credit score is a summary of an individual’s entire credit history and serves as an indicator of their ability to meet their financial obligations. Your credit file is a fairly complex document that’s full of various codes and data. The credit bureau provides an ongoing analysis of that data, summarizing it into an easy-to-decipher 3-digit score, allowing lenders to assess the overall quality of your repayment history, before deciding to dig deeper.

    For example, an excellent credit score may indicate that no further investigation is necessary, an average score might suggest a deeper review, and a poor one could mean a summary denial. In short, credit scores make life easier for the people and agencies we do business with, but not necessarily for us. Because of this, it’s important to keep a close eye on your credit score, so you can fix what’s broken before it becomes a problem.

    How Important is Your Credit Score?
    We generally tend to only think about credit scores when it’s time to borrow money. It might be for a car loan, a new credit card or credit card limit increase, or even a mortgage. Credit scores matter in the approval process of nearly any type of loan, but they can also affect the interest rate you pay. The best rates are usually reserved for those with the best credit scores. So, generally speaking, good credit scores translate into lower interest rates.

    Other Uses for a Credit Score
    But there are situations apart from borrowing, where credit scores are important. Employment is one. Prospective employers routinely pull credit reports on their new hires, often to determine if they’ll hire them at all. Insurance companies will run credit checks on new customers, and the resulting score can have an effect on the premiums they’ll pay.

    Nowadays, just searching for an apartment to rent can result in your credit being checked. Running a credit report before approving your lease application has become standard procedure for many landlords and property management firms. Sooner or later, when you need that new loan, mortgage, or new apartment, the strength of your credit will become very important.

    Who Keeps Track of Your Credit Score?
    In Canada, there are two companies that maintain your credit score. One is Equifax, the other is TransUnion. Anytime a change is made to your borrowing account, your lender sends the information to Equifax and/or TransUnion. This could be to report a credit limit increase, a regular or late payment, or the payment of your account in full.

    Some lenders will send your information to both credit bureaus, some only deal with one or the other. For this reason, your credit score can vary between Equifax and TransUnion. Both companies also use a slightly different algorithm to determine your score, which can also result in a slight variance, although it’s not usually significant. While you have little control over which credit bureau your lender chooses, it’s important to be aware that there are more than one, and that either (or both) could be used.

    What’s Considered a Good Credit Score?
    Now that we know who measures your credit score, and why it’s so important, let’s take a look at what is considered a good score in Canada. Because the parameters have changed somewhat in recent years, it’s not always clear what is considered a good credit score anymore.

    Let’s take a look at the different levels, and how they are categorized:

    • Excellent = Score of 800 or above
    • Very Good = Score between 720 and 799
    • Good = Score between 650 and 719
    • Fair or Average = Score between 601 to 649
    • Poor = Anything below a score of 600

    How to Interpret Your Credit Score
    So, what do these different levels mean? For example, what’s the difference between having a good score and a very good score? The impact of your credit score on an application can vary, but with all else being equal, we can draw some general conclusions from the categories described above.

    If your credit score is above 800, for example, you likely won’t have any difficulty obtaining credit, and the lender will often provide an approval quickly, without requiring additional documentation. Between 720 to 799 (very good), approval is still very likely, but you may not qualify for the best rates the lender can offer. If your score is good (between 650 and 719), you may not qualify for certain products, depending on where your score falls in the range. For example, some premium credit cards have a minimum credit score requirement for approval. If your score falls below 650, most lenders will want to dig deeper into your credit history, to find out why the score is not as strong.

    Based on what they find, they may decline your application, or require you to provide a co-signer or additional security. Generally speaking, a credit score of less than 600 (poor) will be insufficient in order to obtain a mortgage. There are lenders who will consider your application; however, you may be subject to much higher interest rates.

    As you can see, a higher credit score means greater flexibility, and freedom when borrowing. Not only does it make it easier to be approved for a loan, a job, or an apartment, but an excellent credit score will also mean that you’ll pay less for whatever it is you’re buying.

    Tips for Improving Your Credit Score
    If you want to improve your credit score, there are a number of things you can do. Here are some tips that can help you better your credit score, with the first one being the most important:

    Pay Your Bills on Time
    Your ability to repay your loans is the most telling aspect of your credit score. Late payments are recorded and stay on your record for several years. If you pay late repeatedly, you are likely to see a rapid decrease in your score.

    Keep Your Balances Low
    Don’t max out your credit cards, or lines of credit. When you are close to your available credit limit, it sends up red flags and can lower your score. If you cannot pay off your credit card in full every month, try to keep the balance below 50% of your credit limit. A high credit utilization ratio will lower your overall score.

     Build Credit History over Time
    The further back it goes, the better. A long credit history (if it’s a good one) will strengthen your score. Think twice about closing a paid-off credit card that you no longer use if it’s your earliest source of credit.

    Hold Various Types of Credit
    You don’t want all of your credit to be in one category. Mix it up a little. Credit can include credit cards, lines of credit, car loans, RRSP loans, and mortgages. The variety of revolving credit and installment credit can help reinforce your credit history and show that you can handle different credit situations.

    Only Apply for Credit You Need
    Every time you apply for a credit product, your score drops ever so slightly. The more credit inquiries you have in your recent history, the more credit hungry you look, and the lower your credit score will be.

    Check Your Credit Report Frequently for Errors
    With so many parties reporting your credit information to the bureau, a simple keystroke error could result in a late payment being recorded where there was none. While it’s possible to dispute the information and get the lender to change it on your credit report, the process can be a real hassle. You should check your credit report periodically for errors.

    Following the above steps should help you improve your credit score, however, be patient, as it can take time. You may need 60 days before seeing any improvement, and it could take longer than four months to see substantial improvement.

    You Need to Use Credit to Get a Credit Score
    You may be very responsible with your finances. You don’t use credit cards, always preferring to pay with cash. If you are living debt-free, then you may find that your credit score isn’t as good as it could be, and it could mean a higher interest rate on loans you are approved for.

    If you don’t make use of credit, then there is no payment history with which to establish a score. And although debt-free living is beneficial in many ways, it, unfortunately, won’t help your credit score. Since the most important factor is your payment history, you need to be making payments on something in order to have a good score.

    What Is a Good Credit Score in Canada and Why it Matters?
    Maintaining a good credit profile is an important part of your financial health. And while there are many things to consider, the most important step you can take is to make all of your payments on time. As for your actual credit score, higher is better, but you don’t need to have a score over 800. As long as your score is over 700, you’re unlikely to be denied credit due to the score itself. If your average credit score is below 700, there are steps you can take to improve it.

    Look after any unpaid collection items or judgements that are impacting your credit. If you have accounts that are in arrears, it’s important to bring them up to date as soon as possible. If you have revolving credit, such as a line of credit or credit card, make sure you are at least making the minimum payment each month. Failing to do so will impact your credit score negatively. If you’ve never ordered a copy of your credit report, you can sign up through Borrowell or Credit Karma and get your free credit report. If you do, you’ll be well on your way to building a strong credit history.

  • Is Your Credit Score Good Enough to Buy a Home?

    Is Your Credit Score Good Enough to Buy a Home?

    Three little digits can make a big difference when you’re trying to get a mortgage you can afford.  Whether you can land a mortgage with a low interest rate or even get any home loan at all often comes down to three little digits: your credit score.  Does your credit score need some help? And could it keep you from buying a home? Let’s find out.

    How do credit scores work?

    Canada has two main credit bureaus — Equifax and TransUnion — that collect and share data about how you’ve used credit in the country.  These private companies draw up credit reports that summarize your activity and use it to assign you a credit score.  Lenders like banks rely on your credit score to tell if you’re a good investment.

    Credit bureaus assess a lot of information in their reports, such as:

    • How long you’ve had a credit card
    • Whether you miss payments
    • Whether you stay close to your credit limit
    • The number of times you apply for credit
    • The size of any outstanding debts

    Credit scores range from 300 to 900 and they play a big part in being approved for a mortgage.  A higher score means you’re managing your credit well and making payments on time.  A lender will be more likely to let you borrow their money.  A low score suggests you’re a risk, so you could be refused outright.

    When your credit score is decent but not spectacular, a lender will compensate for that risk by saddling you with a higher mortgage rate.  A higher interest rate means a higher monthly payment and steeper total interest charges over the life of the loan.

    How do I know if my score is too low?

    Plenty of third-party services and a few banks will give you a free look at your credit score online.  Other companies will ask you to sign up for a paid service that may have other benefits, like credit monitoring and support.  According to Equifax, most lenders smile when they see a score of 660 or higher.  Anything above 760 is excellent. Anyone with a score below 560 will struggle to get a decent interest rate and may not get a loan at all.

    Each lender has different standards, and those standards can change depending on what’s happening in the mortgage market.  Some private lenders won’t be as demanding as major banks but may offer far worse deals to compensate. These “subprime” lenders work almost exclusively with people who have low credit scores.

    If your credit score needs work, you’ll want to carefully consider whether the cost of a higher interest rate is worth it. You may decide it’s better to delay your home purchase to give yourself time to improve your score.

    How do I raise my score?

    The easiest way to bring up your credit score quickly and snag that mortgage is to obtain copies of your credit reports from the major credit bureaus and make sure everything on them is accurate.  Canadians are entitled to a free look at their credit report at least once per year from both Equifax and TransUnion.  If you find any mistakes, dispute the errors so they can be removed.

    Paying bills on time, even if it’s just the minimum payment, is one of the most important factors.  Contact your lender right away if you fear you might miss a payment, and don’t skip a payment even if it’s in dispute.

    Try not to use too much of your available credit.  The federal government suggests using a third or less of what you could be using, even if you always pay off the balance.  Paying down your credit cards to cut your credit utilization can give your credit score a nice boost.

    Another option is to enroll the help of a free credit monitoring service. You’ll get instant access to your score and be able to check your credit history regularly.  You have a few other options — like using different types of credit rather than just credit cards, keeping old accounts active and trying to limit the number of credit checks — but these basic steps will put you well on your way to home ownership.

  • Credit Reporting 101

    Credit Reporting 101

    Your credit file contains information on all of your credit accounts submitted to the credit bureaus, including balances, limits, payment history, etc…, as well as identification information such as your name, address, age, social insurance number, marital status, spouse’s name and age, number of dependents, occupation, and employment history.

    What is a credit score?

    In Canada, credit scores range from 300 up to 900 points, which is the best score you can have. According to TransUnion, 650 is the magic middle number – a score above 650 will likely qualify you for a standard loan while a score under 650 will likely bring difficulty in receiving new credit.

    Lenders who pull your credit bureau file may see a slightly different number than you see when you pull your own file. This is due to the fact that each creditor applies a specific set of risk rules, giving and taking points for different purposes or preferences. This proprietary method of scoring will make a difference in the final calculation. The score you pull for yourself is calculated using an algorithm created for consumers that approximates these different formulas, and should still be in the same numerical range as the lenders’ scores.

    How long is information kept on my credit file?

    Actual inquiries made by credit grantors minimum of 2 years, however it may only affect you credit for the last 12 months
    Credit history and banking information 6 years from the last activity date
    Bankruptcies 6 years from the date of discharge (1st bankruptcy)
    Judgments, foreclosures, garnishments 6 years from the date filed
    Collections 6 years from the date of last activity
    Secured loans 6 years from the date filed
    Credit counselling, consumer proposals, orderly payment of debt (OPD) 3 years from the date settled or completed

    How can a low credit rating affect my life?

    Credit scoring is used by lenders, insurers, landlords, employers, and utility companies to evaluate your credit behaviour and assess your creditworthiness.

    1. Applying for a loan. Your credit score will be a big factor into the decision of whether you are approved or denied your application for more credit. Your credit score will also affect the interest rate and credit limit offered to you by the new credit grantor – the lower your credit score, the higher the interest rate will be and the lower the credit limit offered – the reason for this is you are considered more of a credit risk.

    2. Applying for a job. A potential employer may ask your permission to check your credit file and based on what they read, they may decide not to hire you due to your poor credit history. Yes, having bad credit could cost you a job!

    3. Renting a vehicle. When you sign an application to rent a car, the rental company can check your credit history to determine what their risk may be when they loan you their property. So although you are not applying for credit, the application documents you sign provide your written permission to access your credit information.

    4. The same is true when applying for rental housing – the landlord may assess your tenant worthiness and their risk by factoring in your credit rating and score, and they could pass you over for someone with a better credit rating.

    What information is used to calculate my credit score, and what factors will lower my score?

    If you have tried looking on the consumer reporting agencies’ websites, you have seen they provide very little information as to how your credit score is calculated. They believe this information is proprietary and therefore their ‘secret’. They do, however, provide a list of the main factors which affect your credit score:

    1. Payment History
    Equifax says: “Pay all of your bills on time. Paying late, or having your account sent to a collection agency has a negative impact on your credit score.”
    TransUnion says: “A good record of on-time payments will help boost your credit score.”

    2. Delinquencies
    Equifax lists: “Serious delinquency; Serious delinquency, and public record or collection field; Time since delinquency is too recent or unknown; Level of delinquency on accounts is too high; Number of accounts with delinquency is too high.”
    TransUnion lists: “Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections.”

    3. Balance-to-Limit Ratio
    Equifax says: “Try not to run your balances up to your credit limit. Keeping your account balances below 75% of your available credit may also help your score.”
    TransUnion says: “Balances above 50% of your credit limits will harm your credit. Aim for balances under 30%.”

    Ok, so avoid maxing out your credit – because if you don’t really need more credit you’ll be able to get it, and if you do really need it then you are more of a risk.

    4. Recent Inquiries
    Equifax says: “Avoid applying for credit unless you have a genuine need for a new account. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can actually repay. A flurry of inquiries will prompt most lenders to ask you why.”
    TransUnion says: “Avoid excessive inquiries. When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.”

    There are two types of Credit Bureau file inquires: “hard inquiries” such as an application for new credit, which will lower your score; and “soft inquiries” such as requesting your own credit report, and businesses checking your file for updates to your existing credit accounts for approving credit limit increases, for example – these will not appear on your file or lower your credit score. So be careful to only apply for credit you really need.

    5. Length/History of Accounts
    Equifax says: A “common negative score factor… [is the] length of time accounts has been established is too short”
    TransUnion says: An established credit history makes you a less risky borrower. Think twice before closing old accounts before a loan application.”

    Having a longer history on your credit accounts earns you more points, so avoid closing your accounts if you may need them in the future. A good credit history is built over time – sorry, but there is no quick fix for this one.

    6. Variety of Credit Accounts
    TransUnion says: “A healthy credit profile has a balanced mix of credit accounts and loans.”

    Having a mix of credit products (credit card, retail store card, line of credit, car loan, etc…) will procure more points on your file than having only one type of credit, such as only credit cards.

    7. Too Many Accounts
    Having a lot credit accounts, especially if many of them carry balances, is another warning sign of financial distress, so if the Credit Bureaus think you have too many, they will deduct points.

    Other “derogatory” factors which negatively affect your credit rating and the Credit Bureaus don’t like to mention to you are:

    1. Errors
    One of the major causes of point loss to your credit rating are bureau reporting errors. Errors can be delinquent accounts reporting on your file that do not belong to you, late payments that were not late, and credit that is created from identity fraud – therefore not your credit. The Credit Bureaus are paid by the creditors who pull credit bureau files and in turn who report to them. Credit reporting is done electronically, and Credit Bureaus accept the information they are sent without any investigation into the accuracy of the information. Therefore, is it critical that you pull your credit bureau file at least once a year. Only you will know when there is an error on your file, and it is up to you to have the credit bureaus fix it.

    Look for these common errors:

    • Wrong mailing addresses
    • Incorrect Social Insurance Number
    • Signs of identity theft
    • Errors in your credit accounts
    • Late payments
    • Unauthorized hard inquiries

    If there is an error on your file you must contact the Credit Bureau, then it is up to the Bureau to investigate your complaint and to verify the information contained in your file by contacting the reporting creditor. When contacted by the Credit Bureau, the reporting creditor will have to verify the item they have placed on your file. You are entitled to be part of that process. Check your credit again 30-60 days after disputing errors. If any of the disputed inaccuracies remain, contact the creditor to further your dispute and determine if the item can be taken off your credit profile.

    2. Moving/Time at Address
    As previously discussed, a large number of credit file requests within a short period due to moving will lower your credit score. But on top of that, the length of time at your current address will influence your score, so try not to move a lot as it will affect your credit rating. The longer you remain at one address, the more points you receive.

    3. Changing Employment Frequently
    The longer you stay at a job, the higher points your credit score receives. You are seen as having a secure job and therefore being a secure, less risky credit consumer.

    4. Having No Mortgage or Housing Information
    The Credit Bureaus assign certain points for those who have mortgages and those who rent, and deduct points for those whose housing situation is unknown to them. As soon as you pay off your mortgage, the reporting account is removed from your file and you are in the unknown category, which will actually remove points from your credit rating! Credit card and other credit account history will remain on your account even after being paid off and closed, but unfortunately a paid mortgage does not benefit your credit rating. Imagine, you own your own home and that does not benefit your credit rating – does that even make sense? Also, not all mortgages report to the Credit Bureaus.

    5. Having High Revolving Credit Balances
    When you have high balances that are rotating between different credit accounts, this is a warning sign that you could be in financial trouble and therefore you could be considered a credit risk.

    6. Having No Debt
    Believe it or not, having no debt is also bad for your credit score! Here we go again – if you don’t need to borrow money creditors will be trying to throw it at you. If you do need to borrow money and have no debt or debt history well, you will have a harder time of it. If you do not have a history of credit use on your file to provide something for creditors to evaluate, they will see that as a risk, and you will be deducted points on your score for not having credit accounts.

    Tips to Raise Your Credit Score

    1. Correct errors, and track your report for future errors. Order your credit file from each bureau at least once per year.

    2. Lower your balances. If your debt levels are above 50% of your available limit, create a payment plan to reduce your balances.

    3. The biggest “tip” to having a good credit rating and a high credit score is to continually use credit and to repay that credit on time all the time. Set up automatic payments to help with this.

    4. If you have no credit history, or need to rebuild your credit, open a secured credit card account. You pay a deposit, which sets the limit of your card, then use it like a regular credit card. The secured credit card provider reports your payment habits to the credit bureau(s), so you will be able to gain points with an account in good standing.

    5. Look over our list, read your credit report, and identify any areas that could be improved for a higher credit rating.
    Remember, “your credit rating is not a reflection of your personal worth – it is merely a credit reporting tool” – Margaret H. Johnson. The good news is your credit rating is like your self-esteem, sometimes in your life it will be high and sometimes it will be low – however, you can always rebuild it over time!

     

    ~ Adapted from Debt Canada