A credit score is a three-digit number that tells potential creditors how likely you are to pay back debt. In Canada, your credit score can range from 300 to 900 and the higher your score, the more creditworthy you are. Financial companies use your score to determine whether or not to give you a credit card, loan or mortgage and at what interest rates.
Canada’s two main credit bureaus (Equifax and TransUnion) regularly update your credit score based on the information your creditors send them about payments you’re making on your loans and credit cards.
It’s important to check your credit score regularly to make sure there are no mistakes. A sudden, unexplained dip in your score could indicate that something is amiss. You want to catch any errors as soon as possible to ensure they don’t negatively affect your credit score.
Even more importantly, checking your credit score and credit report will help prevent fraud or identity theft because you can see if anyone is fraudulently opening accounts under your name.
How to check your credit score
You can check your credit score by reaching out to one or both of Canada’s two credit bureaus. With Equifax, you can submit a request for a free credit score and credit report via an online form, as well as by phone or mail. TransUnion offers a free credit report (which they refer to as a consumer disclosure) but only offers free credit scores to residents of Quebec, so you’ll have to pay an extra fee to get your score from TransUnion if you live elsewhere in Canada.
A faster way might be to use one of the Canadian personal finance websites that offers free credit scores and reports to users who sign up with their email address. Some banks in Canada, such as CIBC and RBC, also provide free credit scores. CIBC gives clients instant access to their score when they use the CIBC Mobile Banking App, while RBC provides it to all its online banking customers.
Soft versus hard check
Credit inquiries can account for 10% of your overall credit score. When your credit report is accessed, the request shows up on your credit file as an inquiry.
There are two different kinds of credit inquiries: hard checks and soft checks (also known as hard and soft pulls). Hard inquiries are those that reflect active requests for credit, such as applying for a loan or credit card. Hard checks can negatively affect your credit score because they’re seen as a potential warning that you are experiencing financial difficulty and therefore need access to credit. As such, you should avoid having too many hard checks within a short period of time.
Soft checks, however, do not show up on your credit report. Examples of soft checks are those made by your bank or a credit card company in order to send you a pre-approved loan or credit card offer. When you request a copy of your own credit file and score, that’s also considered a soft check and so it does not affect your credit score.
What a credit check will show
When a lender does a credit check, it will get your credit report, which shows your financial history within Canada — potentially as far back as the first day you got your first credit card or loan (which is when a credit report is created). Your credit report will contain personal data such as your date of birth, address and Social Insurance Number (SIN).
It will also have information about all your financial accounts including loans, mortgages and credit cards. For each account, there will be details about when it was opened, your credit limits, payment history and how much you owe. The report will also show bankruptcy filings and accounts that have been sent to collection agencies, as well as which creditors have accessed your credit file in the past three years.
How to fix and rebuild a credit score
Here are a few suggestions to fix and rebuild a credit score:
- Get a secured credit card. Because you have to supply a deposit, these kinds of credit cards are much easier to get yet can still help increase your credit score when used responsibly.
- Make your payments on time. Payment history is the most crucial factor in your credit score.
- Don’t cancel old credit card accounts. Even if you don’t use them anymore, it’s good to keep them open because credit history is also an important facet of your score. If you have to close your account, make sure you do so safely.
Why are TransUnion and Equifax scores different?
Your credit score with Equifax and TransUnion will likely be slightly different because credit bureaus don’t always prioritize the exact same metrics to determine your credit score. Also, some creditors may decide to report your accounts to just one credit bureau rather than both, as there’s no law that account data must be reported to both Equifax and TransUnion.
What about foreign credit scores?
Your credit score as reported by Equifax or TransUnion applies only in Canada. If you move to another country, you will have to establish a new credit score there. Having said that, lenders in other countries still have access to your credit history from Canada, and they’ll certainly consider your previous behaviour as a borrower if or when you apply for credit locally.