Credit - How it Really Works

Nothing seems to strike fear into the hearts of our clients like the phrase, "We're going to have to pull your credit bureau". Credit and how a person's credit score is determined seems to be universally misunderstood and a mystery to most people. While it's true that you can't completely determine what your credit rating will be at any given moment, there are things you can do to ensure your credit rating is a good one.

What is the Credit Bureau?

There are two major reporting agencies, or credit bureaus, in Canada: Equifax and TransUnion. These agencies are regulated by provincial and federal law. They store and maintain credit information about people for use by members of the agencies (we are a member). Credit grantors regularly update the information on these bureaus.

For mortgage purposes, only the Equifax credit bureau is pulled. If you are interested in pulling your own credit report, please visit Equifax.ca or TransUnion.ca. There is a small fee which you can charge to your credit card (go figure). There is also a wealth of information about credit on their sites.

What is a credit rating?

A credit rating is a report card of your behaviour as it applies to using credit. If you have credit cards, a loan, line of credit, etc., then it is reported to the credit bureau (usually each month). Information contained on your report:

Personal identification, such as your name, address, date of birth, and Social Insurance Number. This is to ensure that the person listed is actually you, not someone with the same name.
Consumer statement - this allows you to comment about any information in your report
Credit information - this is all the details of your accounts and transactions. It also shows if you are late, or have been late, on any payments - either 30, 60, or 90 days. This information can go back several years.
Banking information - information on your accounts and if you have written an NSF cheques.
Public record - if you have gone bankrupt in the last seven years, or have secured loans or judgments rendered against you, these will show up.
Third-party collection - if a collection agency is trying to collect a debt, that will show up.
Inquiries - includes all companies who have requested a copy of the credit report in the past three years.

**Many people do not know that the more times your credit report is pulled, the lower your credit score goes down. It looks as though you are out shopping for lots of credit. That is why using us for your mortgage is smart - we only pull your credit report one time, and send the same report to all lenders.

What is a Beacon or FICO score ?

Lenders are very busy, and if you've been around a while, your credit report can be upwards of three or four pages long. Consequently, the credit bureau software analyzes your entire report, tallies up the information, and comes us with a number: the Beacon or FICO score (just different names for the same thing). Lenders initially look at this score to determine someone's suitability for obtaining credit or financing. The average Beacon score in Canada is 650. If your score falls beneath this number, it is more difficult to obtain credit. If you are over 650, especially around the 700 mark, then you are considered an excellent candidate (just based on the credit score, not factoring in other variables such as income, debt ratios, etc.).

How is my credit score calculated?

There are many variables used to come up with your Beacon score: payment history on your accounts - are you paying on time?; the amounts you owe on each account - are you almost at the top of your limits?; length of time you've had the accounts; how often are you out searching for new credit?; and the type of credit you have - car loans, credit cards, etc.

How do I fix my low credit rating?

Please contact us at 780-474-7900. As an ex-bank manager, our broker has a great deal of knowledge about how to help people re-establish their credit and get back on the right credit track. We have a credit recovery program that works.