How Credit Works

 
There are two companies in Canada that report on Credit: Equifax and TransUnion.

Equifax is the most widely used out of the two, and the one that I use to check your credit.

Equifax uses a 3-digit number to measure your credit management, ranging from 300-900. The higher your credit score, the better it is, and lenders consider the score of 680 to be ‘average’. The rate that a lender will offer you is largely dependent on your credit score.

Here are the factors on your credit report that determine your score:

Payment History – 35% (315 Points)
Outstanding Balances – 30% (270 Points)
Credit History – 15% (135 Points)
Credit Type – 10% (90 Points)
Inquiries – 10% (90 Points)

An ‘Inquiry’ on your credit report refers to someone running your credit, usually for financing purposes. This could be the result of you car shopping, getting a line of credit or applying for a mortgage.

Either way, you’ve probably heard that each time someone runs your credit, it reduces your score. This is called a ‘soft hit’, and usually results in a deduction of 2-4 points from your credit score.

If your score is just above 680, the last thing you want is to have that reduced right at the time that you’re applying for financing. You want to preserve your credit score as much as possible to ensure that you get competitive interest rates and terms.

The good news is that when you work with me, I only run your credit once regardless of how many lenders I talk to. This allows me to do your mortgage shopping for you and find you a competitive solution, without having a negative impact on your credit score.

There are many misconceptions about credit and how it actually works.

When we work together, I will happily give you some great tips for preserving your credit score.