Credit rating

Everything you need to know

A good credit rating shows that you're responsible with credit. There are two credit agencies in Canada that track of credit ratings in Canada: Equifax and Trans-Union. These  information centers collect data from creditors. In order to consult personal credit data, your consent is always required.

Your credit report is made up of two components: a credit score and a credit rating.

How do you maintain a good credit score?

  • Avoid a multitude of credit checks from lenders. In effect, each time a lender needs to check your credit report, a note is made in your file. Then again, if you are shopping for a mortgage or a car loan, multiple credit report demands over a short period of time (say, 2 weeks) are grouped together and indicated as one credit request. Under these conditions, there would be no negative affect on your credit score.  
  • Limit opening new credit accounts, especially if they consist of the same type of credit (for example, a multitude of credit cards.) It's better to have a variety of credit sources. For example, a credit card, a credit line, and a megastore club card would help your credit score.  
  • Always pay your bills before the due date. Even slightly overdue payments leave a trace.
  • Keep the balance on your credit line low (ideally 35% or less.) If your balance is more than 50% of the limit, it affects your credit score negatively. Needless to say, it is very important you don't exceed your limit. 
  • Accounts open for long periods of time (such as credit lines, credit cards, personal loans) are more "profitable" to your credit score than recently opened accounts. They offer a better long-term view of your payment habits and history.
  • Maintaining the same address and workplace for long periods of time works in your favour. 
  • Maintain an emergency fund for the unexpected such as loss of employment or decrease in revenue. This type of savings shows you'll be able to make your payments while your situation returns to normal. 

For a better idea of how your credit score affects your borrowing capacity, we invite you to browse the Equifax web site.

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The scoring system

Most credit bureaus use the code "R" for a "revolving credit" such as a line of credit, or "I" for consumer credit such as a car loan. In addition, a number is assigned to each item on your credit report. 

Credit score codes to remember:

R0 - Too new to rate; approved, but not used
R1 - Pays within 30 days
R2 - Pays within 30 to 60 days
R3 - Pays within 60 to 90 days
R4 - Pays within 90 to 120 days
R5 - Account is at least 120 days overdue, but is not yet rated "9"
R7 - Making regular payments through a special arrangement (debt consolidation) or other arrangement to settle debts (proposed by client or lender)
R8 - Repossession
R9 - Bad debt, placed in collection, moved without giving a new address or bankruptcy

The higher your score, the better your credit. The better your credit, the greater your options and types of credit you can get access to, such as a mortgage. Hence the importance of keeping your credit in good standing.

It is important to do an annual verification of your credit information to make sure there haven't been any errors. You can check your credit history on the Equifax web site free of charge.