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How Do Lenders Use Your Credit Score?

In Canada there are two credit bureaus that track your credit behaviours and calculate a corresponding credit score; these are Equifax Canada and Transunion Canada. Your credit score is made available to companies that are considering lending you money so they can determine, from your past behaviours, how much of a lending risk you present.

The scoring system:

Through analysis of your financial situation the credit bureaus calculate a score between 300-900 points, with 300 being the worst possible score and 900 being the best possible score. The higher your score is the more borrowing opportunities will be available to you and the more competitive the rates will be as well. If your score is lower than 600 it’s unlikely that you’ll be able to borrow anything. See our article How Long Does it Take to Repair Bad Credit for more information.

How is my score calculated?

The actual equations used to calculate your score are not accessible to the public but the bureaus do provide the criteria they use in their equations. Your score will be evaluated on your payment history, how you’ve used credit, how long you’ve had credit for, the amount of credit you’ve applied for, and the type of credit you’re using. Each of these criterions is weighted differently; see our article What Affects Your Credit Score for a more thorough explanation.

How does my credit score impact my home ownership goals?

Although many measurements go into your ability to apply for a mortgage, your credit score will have a big impact on the interest rate available to you. The lower your score is the higher a risk you appear to be to mortgagers and there will be a higher interest rate to go along with that. There are ways to get bad credit mortgages that can help you not only achieve your home ownership goals but also provide you with an opportunity to improve your credit.

How often does my credit score change?

Your credit score is a highly accurate picture of your borrowing habits. In fact, your credit score is updated on a daily basis, which can be either very good news or very bad news for you. If you have bad credit and are working toward improving your credit, your score will reflect that every day that you show that you are making responsible decisions. On the other hand, making poor credit decisions will impact your score just as quickly.