Understanding your Credit Report and Credit score - Part 1

Understanding your credit report and credit score – Part 1 

What many prospective borrowers don't realize is that the pricing of mortgages and other loans is based in part on their credit-worthiness.  Consumers need to be aware of how their credit is evaluated by lenders, and how they can work to avoid so-called "bruised credit" – people with a lower credit score can find themselves paying a higher interest rate, or even denied access to certain types of loans. 

A credit report is a detailed history of how consistently you meet your financial obligations, and provides a picture of your financial health based on your past behaviour.  A credit score is a three-digit number, usually between 300 and 900, representing your overall credit-worthiness, based on personal information from your credit report and other sources. 

Both your credit report and score are important.  When deciding whether or not to grant a mortgage loan, lenders refer to an applicant's credit report and score, along with a range of other factors such as income, employment history, and size of down payment. 

The higher your score the more likely you are to be approved for a mortgage and receive favourable rates because the lender considers you to be a better credit risk.  Several factors are used by the two main credit agencies in Canada (Equifax Canada and TransUnion Canada) to calculate credit scores:

  • Debt payment history.
  • Amounts owed compared to your current credit limits with lenders. 
  • How often you seek new credit.
  • Length of time you have had credit accounts.
  • Type of credit, such as car loans, lines of credit, credit cards.

Next week:How to keep your credit report and credit score healthy. 

Daniella Aitken

Daniella Aitken

Sales Representative
CENTURY 21 Miller Real Estate Ltd., Brokerage*
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