Master Your Credit Score

Last Updated October 29th 2023


Your Credit Report

Your credit rating is based on a score which means it’s like a game and you have the ability to dominate the game. Everybody wants the high score and we’ll show you what it takes to get there.

Your credit report is a picture of your borrowing history. Financial institutions like credit unions, banks, card issuers, and mortgage companies use your report to decide if they will extend you credit and at what interest rate. This is why understanding your credit report is crucial. It can determine if you’re able to buy your dream home, start a business, or get yourself out of a tricky situation with a consolidation loan.

Financial institutions generally have their own internal reporting measures but TransUnion and Equifax are the two national reporting agencies in Canada. They collect credit details from lenders, certain businesses, and other creditors. Some lenders may report information to both agencies, just one, or sometimes none at all. Whatever details Equifax and TransUnion have will be calculated into a score. Let’s take a look at what information is collected and later we’ll find out how things are calculated.


The Components of Your Credit Report

There are four main parts to your credit report: your information, your accounts, any inquiries, and the negative news.

The information gathered about you is fairly straight forward. It will of course include your Social Insurance Number, your name, address, and date of birth.

Your credit accounts are the past and present of your borrowing. Sometimes referred to as tradelines, these are loans such as credit cards, lines of credit, mortgages, or car loans, listed in order of creation date. Other relevant details that are displayed include the date you opened the account, your credit limit, the existing balance (not updated in real time) and your payment history.

Inquiries are requests to pull your credit history. The inquiry will show the party that pulled the report and the date it occurred. There are two different types of inquires and they each touch your score differently. Hard inquires happen when an institution is checking your credit report for the purpose of a loan. These types of hits will alter your score. Soft inquiries arise when you check your own score or non-lending searches completed by cell phone or utility companies. These do not impact your score.

The last section is the negative news component. This includes bankruptcies, collections, consumer proposals, and public court filings. This is clearly a section you want to leave blank, particularly because they can sit on your record for a long time.


What Is A Good Score?

So you need something to aim for to get an understanding of how you stack up. TransUnion and Equifax scores range from 300-900.

300-692 is considered Poor, you don’t want to be there. 693-742 is thought of as Fair, 743-789 is designated as Good, 790-832 is Very Good, and the cream of the crop is 833-900 which is Excellent. Generally, six months’ of credit history will provide enough information to produce a score. Your score is not set in stone therefore it will fluctuate over time, based on how diligent you are with the various actions that can affect your score.


How Is Your Credit Score Calculated?

Payment history is the most important factor in determining your credit score. Roughly 35% of your score is allocated to history.

Your credit history details information such as the number and type of credit accounts including mortgages, lines of credits,  plan loans, car loans, credit cards, student debts, and home equity lines of credit as well as how regularly they have been repaid.

This section also underscores details on late or missed payments, public record items and collection information.

Scoring metrics review how late your payments were, the balance owed, when the last missed or late payment was, and how often you missed a payment. Your credit history also shows how many of your credit accounts are in bad standing relative to all of your accounts on file. For example, if you have fifteen tradelines/credit accounts, and you’ve had a late payment on three of them, that will likely be a drag on your credit score.

The next weighting is often overlooked which can baffle consumers as to why their score is lower than what they believe it should be.

Your score is based 30% on your balance versus your available credit

An important component reviews how much of the total available credit is being used on your revolving credit facilities. A revolving limit means as you pay down the balance, you get that room available again to spend. For example, if your limit is $5,000 and you have a balance of $3,000 you can spend $2,000 more. If you make a payment of $500 you can now spend $2,500 more. 

Also included in this factor is the total limit for your lines of credit and credit cards.

Credit mix plays a smaller factor; approximately 15% is based on types of credit accounts. A variety of accounts will slightly help boost your rating. We’ve already gone over different account types (line of credit, mortgage, credit card, car loan).

10% is designated to the number of new credit accounts. Whenever your credit file is accessed, the request for information is logged on the file as an inquiry. Inquiries require your consent, but only hard inquiries may affect the credit score calculation. Obviously not all inquiries are a signal of financial duress, and generally it would take a lot of recent inquiries in a short amount of time to hurt your score. 

Lastly, there is an area in the calculation for the age of your credit account which is assigned a 10% weighting. This section of your file details how long your credit accounts have been in existence. The credit score calculation typically includes both how long your oldest and most recent accounts have been open. In general, lenders like to see that you’ve been able to properly handle credit accounts over a period of time.


How To Improve Your Credit Score

First things first, you need to check your credit score. Most financial institutions give you access to either a TransUnion or Equifax score through their online platform. If your bank or credit union doesn’t, you can access the report directly from the reporting agencies. 

Step one would be to make sure your report is accurate and there are no indications of fraud. If everything is all clear check to see if you have any delinquencies showing (things past due). It’s a good idea to tackle this negative information first by paying off as many outstanding debts as you can. Keep in mind any accounts in collections even after they’ve been settled, will still remain on your credit report for six years from the time they went into collections.

One of the best things you can do to improve your credit score is to pay your debts before they are due. Be aware of due dates by regularly checking your statements or loan agreements. If you struggle with on-time payments, consider using automatic payments for your accounts or setting up alerts either on your phone or computer as a friendly reminder.

Recall that your credit utilization ratio is the amount of overall credit you have compared to the balance that is reported to the credit bureau.  If you’re above 30% of your individual limits, that could potentially affect your score in an unfavourable manner. It’s typically best to keep your credit utilization rate at or below that amount. You can do this by spending less on credit, making more frequent (more than monthly) payments, or asking your credit card company for a credit limit increase.

Opening a new credit account can also decrease the average age of accounts on your credit history so really consider if you need that new credit card or if you’re just after it for the welcome bonus.

On the other side of that coin consider avoiding shutting down old accounts that have been paid off if possible, even if you no longer use them. This particularly applies to lines of credit. They don’t cost you anything if you don’t use them but they can come in handy during an emergency.


When Things Go Wrong You Can Defend Yourself

People make mistakes and when that happens you can explain yourself. You have the right to attach a statement to your credit report explaining why, for example, you have missed a few payments or you have applied for a bunch of new accounts recently.

Similar to your mishaps, the statement remains on your report for six years and is viewable by companies receiving a complete copy of your credit report. Statements like these give you a fighting chance to still obtain credit despite making mistakes in the past. 



Q: How long does something stay on your credit score?

A: Things like missed payments or collections can stay on your Equifax and TransUnion credit report for up to six years.

Public records such as judgments and first time bankruptcies may report on your file for 6 to 10 years depending on the province.

In the case of multiple bankruptcies, each bankruptcy will report for 14 years from the date of discharge

Healthy credit information stays on your report for much longer, possibly up to twenty years. 

Q: What’s the difference between a hard inquiry and a soft inquiry?

A: A soft inquiry does not affect your credit score. Examples of soft inquires include account requests a creditor has made on your behalf in order to make a pre-approved credit offer, to review your account with them, or your own request for a copy of your credit history. Hard inquiries do affect your credit score. An example would be when when you apply for new credit on your own.

Q: Who is allowed to look at your score?

⬨Credit card issuers
⬨Car loan lenders
⬨Insurance providers
⬨Prospective employers
⬨Mortgage lenders
⬨Utility companies
⬨Government agencies

A: Why are your Equifax and TransUnion scores different?

Since lenders aren’t required to report to both agencies, the information on your credit reports could differ. Also remember that some financial institutions may not report loans at all, although these are typically the smaller players. Lenders also report activity to the credit bureaus at different times during the month, which could result in short term discrepancies in your score.