Credit Rating in Canada: An Overview
Are you aware of your credit rating? If not then, through this blog we would try to provide you with a detailed overview of the same. Let us first begin by trying to understand what credit rating is.
Credit Rating: What is it?
In simple terms, your credit rating is a measure of your financial health and financial trustworthiness. From the statistics point of view, your credit rating reflects the probability of you to make your payments on time and repay your debts.
In case you apply for credit, lenders will not send out a personal investigator to check up on you. To assess your financial health and overall credibility neither would they, in most cases call your friends and family, talk to your neighbors or call your boss to find out if they can trust you. The reason is that the information they glean might be very subjective.
It is much more effective and realistic for lenders to create a record of some of your financial activities and thereby assign scores to these financial activities based on whether those types of activities are deemed to potentially help or hurt your overall financial situation. It is the collection of all of these financial activities, which is called a credit report.
Credit Score
The score a credit report generates based on all of your financial activities is called a credit score. These two together i.e. your credit score along with your credit report together form your credit rating.
Generally, the type of financial activities that are recorded on a credit report includes all types of revolving credit. These can include credit cards, store credit cards, lines of credit and overdrafts, loans and overdue debts. It also includes collections made that can affect credit score. Regular payments in the same denote a higher rating whereas irregularities in payments result in lower scores.
Canadian Credit Reporting Agencies
When it comes to Canada there are two agencies. These are Equifax and TransUnion. They are the two agencies who create credit reports in Canada. You must take note that all major banks, credit unions, credit card companies, finance companies and many other lenders and collectors report specific information to Equifax and TransUnion. These agencies based on this reporting create credit reports.
Information under this is reported as per specific rules specified. These can only be shared with lenders and creditors who follow strict policies. What you must also know is that a creditor can only access your credit report with your permission. Apart from this, no one else is allowed to have access to a credit report without your permission.
These agencies generate credit scores that range between 300 and 900. This score basically gives a clear indication of your ability to repay your debts over the next 12 to 24 months. It is always advisable to make regular payments on your loans so that you have a higher credit score rating, which will make it easier for you to avail loans in the future.
