FAQ's about Credit

What is credit?

‘Credit’ is the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.

What is a good credit score?

In Canada, credit scores range from 300 (just getting started) up to 900 points, which is the best score. According to most lender and insurer guidelines:    

  • <600 is considered high risk; unlikely to get loan without help  
  • ≥650 is considered good  
  • ≥750 is deemed excellent 

Who are Canada’s credit reporting agencies?

The most widely used reporting company is Equifax, with Trans Union becoming more widely accepted. Experian is not commonly used.

How is my credit score determined?

There are 5 components that go into making your credit score.

  1. Payment history is an indication for lenders and creditors whether an individual is a lending risk due to a history of late or missed payments (bankruptcies, past due accounts, collections, judgments, etc.  Three factors will determine the size of the deduction in score: 
    a) Time passed since the payment blip
    b) Number of missed payments
    c) How bad the blunder was
  2. Amounts owed on credit Keeping the balances outstanding to less than 65-75% of the available credit limit will INCREASE the score. Balances above 75% of the available limit will DECREASE the score .
  3. Length of time of credit history Favorable weight goes to those trade lines with the longest history. Past credit behavior is a good indication of future behavior, and this establishes a perceived foreseeable pattern
  4. New credit & inquiries  This is measured by the number of credit inquiries: 4-6 inquiries in the last 12 months is acceptable >6 inquiries in the last 12 months will impact the score negatively  *Do not allow anyone to pull a credit report on you unless it is absolutely vital*  Many people inadvertently disqualify themselves from attaining the best rate as they are shopping for a mortgage. Your Beacon score drops each time a bank pulls a credit report, sometimes eliminating the chance for the best mortgage. During the financing process, we pull only one credit report and forward it to all the lenders.
  5. Types of credit  Different forms of credit carry different weights. Having at least one strong trade line is necessary. stronger      Credit cards (Visa, Mastercard, Amex) Personal Lines of Credit  Home equity lines of credit Department store cards Instalment loans (car loans)* weaker Student loans* *Although these are weaker avenues to build credit, missing payments on these will still negatively impact your overall credit.

What can make my credit score go down?

  • Going over limit (even by $1) 
  • Operating close to limits (above 75%) 
  • Slow repayment / late repayment 
  • Not paying minimums 
  • Unresolved phone / power bill issues
  • Bankruptcy / consumer proposals
  • Collections 
  • Judgments

How can I increase my credit score?

  • Pay bills on time
  • Set auto-payment
  • Don’t go over limits (65-75% of limit, max)
  • Pay cards in full every month
  • Settle disagreements promptly
  • Be weary of co-signing loans 
  • Don’t excessively apply for credit

What is a good credit score?

    Weight Maximum Points
Payment History Bankruptcies, late payments, past due accounts and wage attachments, collections, judgements 35% 315
Amounts Owed Amount owed on accounts, proportion of balance to total credit limit 30% 270
Length of Credit History Time since accounts opened, time since account activity 15% 135
New Credit Number of recent inquiries, number of recently opened accounts 10% 90
Types of Credit Number of various types of accounts (credit cards, retail cards, mortgage, line of credit, loans etc.) 10% 90
Total   100% 900