There are two major credit reporting agencies in Canada, Equifax and TransUnion. An account with usually both these credit reporting agencies is created when a consumer applies for credit. The creditor (bank, Credit Card Company, department store, etc.) would report this transaction to the credit reporting agency, thus creating the consumer’s account, and continues to send reports as long as the consumer has credit with them. There are very few situations in which the extension of credit to a consumer does not result is a report going to the credit reporting agencies.

The credit reporting agencies then track all the credit information reported to them and thus create the consumer’s credit profile. The credit information collected reflects the amount of credit an individual has accumulated, minimum amount of payments, the regularity of payments, any missed payments, credit judgements against them, etc. The credit report also lists their employer, or if self employed,occupation, address, date of birth and social insurance number, who has extended the credit, to whom the consumer has requested credit from, and often any former names (aliases).

Beacon Score

The assessment of the consumer’s credit worthiness by the credit reporting agency is based on statistics and various calculations that are translated into a credit score. Equifax calls their score a “Beacon Score”, while TransUnion calls their score an “Impercia”. A credit score is a risk assessment. It is a prediction of the consumer’s probability or likeliness to default on a debt over a 2 year period. The lower the credit score, the higher the risk of default. Since Equifax is used most commonly, I will refer primarily to the Beacon score. A beacon score can range from 300 to 850. Creditors usually interpret the score as follows:

680 – 850 : good to superior credit

600 – 679: average to good credit

570 – 600: below average credit

Below 570: poor credit

There are 5 main factors that influence the beacon score:

1. Payment History: typically contributes 35% of the score;

2. Amount of credit outstanding: same as above, about 35% of the score;

3. Length of credit: approximately 15% of the weight in a score;

4. Number of new credit enquiries: approximately 10% of the score;

5. Types of credit sought: about 10% of the score.

It is important to note that a high beacon score and relatively new credit profile may not necessarily lead to a credit approval. The creditor may not view the short period of credit history as sufficient evidence of the consumer’s ability to handle debt repayment.

Remember this is a working document and you repair any bad credit over time. Don’t have too many credit cards or credit inquiries as this will work against your credit profile. When you’re in the process of purchasing a new home and applying for a mortgage it is vital to put most or all purchase ON HOLD, until after the funding date. If you have any doubts, please ask me!