Your credit score is an extremely important part of your personal finances. Here, I’m going to be breaking down what your credit score is, what your credit report is, why you should even care and how you can check yours for free in minutes!
A credit score is a score between 300-850/900 that basically tells lenders how risky of a customer you are. The higher the number, the better! They want to know the likelihood of you paying your bills on time if you were to borrow money from them or use their services in general.
To make things complicated for us (thanks guys!), there are a few different credit bureaus. This means you’ll get different scores from different bureaus based on which lenders report to which credit bureaus. The main two bureaus in Canada are Equifax® and TransUnion®.
If you care to know, TransUnion uses the VantageScore whereas Equifax uses the FICO score. The two scores just weigh some factors differently (like payment history and credit balances etc.) so you’ll likely end up with slightly different scores even if both bureaus were given the exact same information.
The credit system is definitely not perfect but it is what it is.
You can think of your credit score like your final grade for a class in school. You don’t see any of the specific assignment or test marks, it’s just the overall percentage that summarizes what happened throughout the semester. In this example, the VantageScore might make the final exam worth 30% whereas the FICO score would weigh it as 50%. You can see how you might get different final grades for the same work.
Your credit report is not the same as your credit score.
Your credit report will not contain your credit score, but what it will include is all of the background information that will ultimately make up your credit score. The report is made up of all your identity information, payment history, credit limits and balances, and any bankruptcies, etc. will all be shown on the report for a certain amount of time.
Let’s keep going on the school report card example. The report would be the compilation of all the assignments and tests, absences and lates to class etc. all without showing the final letter grade received. You can imagine with all of that information you would get a pretty good idea of what kind of student you were dealing with, regardless of the final grade.
Your credit score will affect your ability to qualify for any loans, credit cards, mortgages and more. It’s important to know your score so you can work on improvements and monitor for inaccurate information or identity theft and fraud.
Equifax and Transunion
Equifax and TransUnion are the two main credit bureaus in Canada. You can request to get your credit report free from each of them but only once per year. If you would like either your credit score or monthly credit report updates, you will have to fork up some cash for it. You can also check out some of the free options below.
Your Bank
Some banks and credit unions will offer credit scores for free through their online banking portal.
For example, I can personally check my TransUnion credit score and credit report through the Scotiabank online banking website with monthly updates. Go and check your online banking! Your bank might offer the same.
Credit Karma
Credit Karma offers free access to credit scores and reports from TransUnion with weekly updates.
Credit Sesame
Credit Sesame will give you access to your TransUnion credit score for free with monthly updates. They will also tell you some of the important factors that are affecting your score.
Borrowell
Borrowell will provide you with your Equifax credit score and report for free. They also offer customized tips to help you improve your score.
Checking your own credit score will not negatively impact your score. It is only when you apply for credit or your credit is reviewed by landlords, lenders etc. that your score will be affected.
All in all, your credit score demonstrates whether or not you can be trusted to pay your bills on time. Landlords will use it to pick trusted renters, mortgage lenders will use it to choose what rate to give customers based on their level of risk, you get the idea.
The most important things you can do are to pay your bills on time and to pay your credit card balances in full every single month.
Now go check your score already! Knowing exactly where you stand with your finances at any given time will go a long way towards making you feel in control.
Disclaimer: I am not a certified financial planner or investment advisor. The ideas posted on this website are my own opinions on how I manage my personal finances. The content is specifically for educational and informational purposes and is not considered professional financial advice.
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