What is a credit score?
Your credit score is a tool that credit agencies use to serve as a measure of a
clients’ potential credit worthiness. Lenders will use this score as a guide, and have set minimum credit score requirements for almost every mortgage product.
Who comes up with my credit score?
There are two main credit agencies in Canada who keep track of your credit. They are Equifax and TransUnion. They each use a slightly different weighting system in the formula they each use to arrive at your credit score, however, the underlying principles are basically the same.
How do these companies come up with my credit score?
Your score is affected by a lot of different factors, and each factor carries a different weight in how much they will impact your credit score. These include:
-How long you’ve had established credit.
-How well or poorly you’ve paid the credit you’ve had.
-What type of credit you have.
-Account balances compared to credit limits.
-New credit compared to total credit.
-How often you inquire, or seek to obtain new credit lines.
What is a ‘good’credit score?
A good credit score is generally considered to be over 600. If your score drops below the 600 threshold, you may face extra scrutiny from lenders and could severely limit your mortgage, or borrowing options.
-Scores range from as low as 300 to as high as 900.
-In mortgage terms generally 600 or higher is required.
-Some mortgage products have higher score requirements than others.
What does it all mean?
In summary, if you have paid your credit on time, you should have no worries about your credit score. The longer you’ve had credit, and the longer you’ve paid it well, the higher your score will be. The higher your score is, the more options you will have available to you when it comes time to borrow, for any purpose.
If you think you may have had a few credit issues in the past, maybe you should check out our next section, How can I improve my credit score?