Date

July 11, 2022

Credit Scores FAQ

There’s a lot to learn about credit scores but where should you begin? Here are the most frequently asked questions to get you started.

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Frequently asked questions: credit scores

Knowing your credit score, credit rating and what’s in your credit report is important. All of these are tools used by lenders when they’re deciding whether to approve you for a credit card or a loan, and when they’re determining the interest rate you will pay. Using credit wisely, making payments on time and avoiding missed payments are just a few things that can contribute to good credit. But there’s so much more to learn. There are a lot of questions around credit and we’re here to answer them all for you. - thumbnail

Knowing your credit score, credit rating and what’s in your credit report is important. All of these are tools used by lenders when they’re deciding whether to approve you for a credit card or a loan, and when they’re determining the interest rate you will pay. Using credit wisely, making payments on time and avoiding missed payments are just a few things that can contribute to good credit. But there’s so much more to learn. There are a lot of questions around credit and we’re here to answer them all for you.

Listen to our “9 Things About Credit Scores” Podcast with BDO Licensed Insolvency Trustees Ilan Kibel and Michael Comrie.

What is the difference between a credit report, credit score and credit rating?

A credit report is a full history of who you are, how much credit you have and which kind of loans you have taken out. A credit score is the rating that the credit bureaus conduct ranging from 300 to 900, with 900 being the healthiest. This influences a lender's decision on if they trust you will pay them back or not. A credit rating is another ranking system on a scale of zero to nine. Zero entails you have no credit whereas nine represents extensive credit with possible bankruptcy or debt having to be written off. 

Does my credit score solely determine my financial health?

No, your financial health is made up of many different aspects. You must be aware of each type when you’re applying for a loan, buying a home, leasing a motor vehicle and more. A financial institution will compile and examine all these aspects to determine whether you are a person they are willing to lend money to.  

What is all included in my credit report?

There are common elements that are found in every credit report. First, there will be identifying information like your name, date of birth, SIN, address and more. There will also be information about your employment currently and previously. Next, you will find your credit account or information which Equifax and TransUnion refer to as trade lines. This is where all the credit you use is recorded. The next section is your public records. This includes things like insolvency filings, proposals, bankruptcies, liens, secured debts, civil actions or judgements. This is also where you will find any debt that has gone to collections. Finally, you will find a list of inquiries. When you are applying for credit, the agency, lender or financial institution may check your credit with Equifax or TransUnion which counts as an inquiry. 

What should not be included on my credit report?

When you are reviewing your credit bureaus, you must be conscious of certain things that should be excluded on your credit report. This includes things like age, ethnicity, religion, marital status and salary. If you see these things on your credit report, you need to get it corrected as they are not used or necessary in any calculations.

Who has permission to access my credit report?

Not everyone has permission to access your credit report, you must give a creditor permission to view it. After that permission is granted, they will have the authority to look into your credit report and do regular checks. If there are defaults, lenders will want to see your current situation, which requires your permission. 

How often should I check my credit report and credit score?

You can check your credit report and credit score regularly for free. Like your personal health, you must do regularly check-ups with your credit. You should be checking it at least once a year. If you are applying for credit over a short period of time, you should be checking it more frequently than that. This is also key to ensuring you don’t get caught up in issues like fraud. Another option is credit monitoring programs that update you on a monthly basis of everything that gets reported. This will allow you to review it for accuracy and stay up to date.

Where should I check my credit report and credit score?

Institutions report to either Equifax or TransUnion and they update your credit report accordingly. Therefore, anytime you pull your credit report you should be pulling from both of them to get all of the information. It is important to note that using the free function won’t provide you with a credit score just a credit report.    

Does checking my credit score hurt my credit?

No, checking your own credit or credit score will not affect, lower or impact your credit of any kind. There is a difference between soft and hard inquiry. A soft inquiry is individually checking your own credit, credit score or pulling your own credit report. By just looking through a soft inquiry, there will be no impact on your credit.

A hard inquiry is when you are actively applying for a loan, credit card or leasing a motor vehicle. This is when you have given the creditors permission to inquire into your account and have it recorded as a hard inquiry. This will impact your credit score the more often you do it. 

Can multiple credit applications lower my credit score?

It depends on what type of credit you are applying for. If you are applying for a specific type of credit, like a mortgage or car loan, you will conduct multiple hard inquires over a short period of time. You should work with the lender and Equifax to identify that this won’t have the same impact as applying for something like multiple credit cards in a month. For a mortgage or car loan, they know that you are applying for the purpose of looking for the best rate and therefore won’t hold all of those hard inquires against you.

What should I be looking for when reviewing my credit report?

The most important thing you should be looking for is common inaccuracies. These can be mistakes by an institution you’ve borrowed from or information that got lost in transition or translation between the lender and credit reporting agency. Mistakes could also be found as suspicious behaviour. This includes debt showing up that you never borrowed or fraudulent activity.  

Are there habits that can hurt my credit score?

One major factor that contributes to creating your credit score is your payment history. Ask yourself questions like do you miss bill payments? How many payments have you missed? If you do miss a payment, it will get recorded even if you make up for that payment later. Your rating might climb back up but the fact that a payment was missed will stay recorded for a certain number of years. Equifax and TransUnion have their own rules on it, but typically derogatory and negative information will stay on your record for six years. 

What should I do if my missed payment goes to collections?

If you have a collection item on your credit, it will be the one bad apple spoiling the bunch. When reviewing your credit report, collections are important to look for. Once you confirm that it is not inaccurate or fraudulent, you should work on resolving it quickly. It will stay recorded that you had an item that went to collections but having the balance at zero will slightly improve its impact on your credit.  

How do I get bad or inaccurate information off my credit report?

The most important step to take when you are faced with this situation is to talk to the two credit bureaus, Equifax and TransUnion. If there are issues that you’re disputing, they will investigate and look into it. If there is confirmation of these disputes, they will take it off. If there is no confirmation or they are unable to prove the dispute, it may be more difficult to get off your credit report. This is another reason why you should review your credit report on an annual basis, especially when it’s bringing your credit down. Continuous check-ins will help you resolve these issues faster and easier.

Does credit utilization affect my credit score?

A general rule of thumb is to not go above 30% of your credit limit. An example of this is having a monthly credit limit of $5,000 and currently sitting at $4,500 used. In this situation you are riskier to lenders and their perception of you, based on your ability or inability to repay the debt, becomes more difficult to establish. Instead, with this credit limit you should only use $1,500 or less of credit.

What factors make up my credit score?

There are five main factors that make up your credit score. These include your debt-to-credit ratio and your credit utilization which make up around 65% of your credit score. The additional factors are the number of inquiries, payment history and length of history. You can also reach out to a Licensed Insolvency Trustee from BDO in your local region if you have further questions about what influences your credit score.

Can I have more than one credit score?

The five factors previously mentioned are part of the scoring model that TransUnion and Equifax use to calculate your credit score. Banks and other financial institutions have their own algorithm metrics they use to make these calculations. Therefore yes, you have more than one credit score depending on the financial institution. These various scoring models are recognized by the credit reporting agencies.

Does filing a consumer proposal or bankruptcy affect my credit score and for how long?

Yes, both a consumer proposal and bankruptcy affect your credit score. For a bankruptcy, Equifax will report it for six years from the discharge date. TransUnion will report it for seven years. If you file for a second bankruptcy, both bankruptcies will appear on your credit for 14 years from the respective discharge dates. The damage will accumulate when you file for multiple bankruptcies.

A consumer proposal stays on your file for a maximum of six years, even if you file multiple proposals. If you have a five-year proposal it stays on your file for an additional year. However, if you pay it off in your first year it will stay on for three years from the date of your last payment. A consumer proposal and bankruptcy may be the quickest and best way to rebuild your credit in a shorter timeframe than continuing what you are currently doing with no difference in results. 

If you have more questions about credit scores and need support, reach out to a BDO Licensed Insolvency Trustee today for a free, no-obligation consultation. 

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Date

July 11, 2022

Credit Scores FAQ

There’s a lot to learn about credit scores but where should you begin? Here are the most frequently asked questions to get you started.

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