What is a credit report?

A credit report is a 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 with the date the credit was granted, the amount of the credit and the amount of the monthly payments. Every month this file is updated by the credit grantor to indicate the current status of the loan. 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 inform them of what is happening with their specific credit files.

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 credit score, the more likely you are to pay your future debts.

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 score revolves around the repayment history of loans and credit lines, how well they were paid. 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.

What can be done to increase beacon scores?

There are several things you can do to increase your credit score.

First off, always make sure you make your minimum payments on time.
Secondly, do not carry a balance that is at or over your limit on credit lines.
Thirdly, too many inquiries in a short period of time will appear as though the client is credit seeking, do not have credit bureaus pulled unless absolutely necessary.
The fourth point is to 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.
Lastly, 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. You don't want to find out a problem when you are applying for a mortgage on your dream home.

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.