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What is a credit report?
A credit report is a personal history of how well you have paid your previous and active credit lines. When you apply for credit, a file is created with the credit reporting agencies which summarize all the credit line details. Every month this file is updated by the credit grantor to indicate the current status of the credit line. Credit grantors can be banks, finance companies, credit unions, retailers, credit card companies and so on. Although the credit reporting agencies are responsible for reporting your credit history, it is actually the credit grantors that report to them what the status of the credit line is at regular intervals.
There are two major credit reporting agencies in Canada, Equifax Canada Inc., and TransUnion of Canada. They are governed by both provincial and federal laws to store and maintain credit information about Canadians for use by other members of their agency (ie the banks, finance companies, etc).
The idea behind credit reporting is to allow credit grantors access to your previous credit history to determine what the probability is of you paying future credit lines with them. The better your previous credit history and current credit score, the more likely you are to pay your future credit lines.
What is a beacon score (FICO)?
A beacon score is the rating that the credit reporting agency gives individual credit bureaus based on a number of factors on the bureau. The main factor in your score revolves around the repayment history of loans and credit lines. Other factors also have a bearing however, such as the amount of debt versus the amount of credit (ie are you over limit or close to the limit on your credit lines), and the number of inquiries on your bureau (an inquiry is when a credit grantor pulls a credit bureau on you to decide whether you grant you more credit). Although the latter two do not indicate how well you have paid your credit in the past, they do indicate how well you manage your credit.
There are several things you can do to increase your credit score.
- Always make sure you make at least your minimum payments on time,
- Do not carry a balance that is at or over your limit on credit lines,
- Try to limit the number of inquiries that are pulled on you; too many in a short period of time will appear as though the client is credit seeking,
- Do not carry credit lines from high interest finance companies; these lines will affect your score even if you repay the loans on time and carry a modest balance,
- Check your credit bureau once a year to make sure there are no credit lines that do not belong to you, or any errors on your bureau.
To take advantage of Canada's lowest mortgage rates, keeping your credit history clean is very important. If you need some help with your credit, or if you would like to know if your credit score is strong enough to qualify for a mortgage, please contact us and we will gladly help you out.
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