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Credit Scoring - How it Works

Credit scoring is a statistical method that lenders use to quickly and objectively assess the credit risk of a loan applicant. The beacon score is a number that rates the likelihood you will pay back a loan. This comes from one of the 2 reporting Credit Bureaus, Equifax and Trans Canada.  Scores range from 350 (high risk) to 950 (low risk). 

Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

    Different portions of your credit file are given different weights. They are:
  • 35% - Previous credit performance (specific to your payment history)
  • 30% - Current level of indebtedness (current balance compared to high credit)
  • 15% - Time credit has been in use (opening date)
  • 15% - Types of credit available (installment loans, revolving and debit accounts)
  • 5% - Pursuit of new credit (number of inquiries)

The most important factor for a good credit score is paying your bills on time. Even if the debt you owe is a small amount, it is crucial that you make payments on time. In addition, you may want to: keep balances low on credit cards and other "revolving credit;" apply for and open new credit accounts only as needed; and pay off debt rather than moving it around. Also don't close unused cards as a short term strategy to raise your score. Owing the same amount but having fewer open accounts may lower your score.

Recent changes minimize the negative effects that rate shopping can have on a mortgage applicant. If there is a consumer originated inquiry within the past 365 days from mortgage or auto related industries, these inquiries are ignored for scoring purposes for the first 30 calendar days; then, multiple inquiries within the next 14 days are counted as one. Each inquiry will still appear on the credit report.

Every score is accompanied by a maximum of four reason codes. Reason codes identify the most significant reason that you did not score higher. The reason codes can help a lender describe the reasons for higher than expected rates or loan denial. 

Your credit report must contain at least one account which has been open for six months or greater, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.

Frequently Asked Questions

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Other Credit Reporting Topics

Obtaining a copy of your credit file on a regular basis is an important step in managing your financial situation. Just as important is gaining an understanding of other credit-related issues and resources. In this section, you can find information about Equifax's privacy policies and practices, and consult our Frequently Asked Questions for information on subjects such as fraud, credit scoring, counselling and more. There are many reputable sources of information on matters concerning personal credit. We've listed some contacts and web sites in Helpful Links.

What exactly is a credit file?

Your credit file is created when you first borrow money or apply for credit. On a regular basis, companies that lend money or issue credit cards to you - including banks, finance companies, credit unions, retailers - send specific factual information related to the financial transactions they have with you to credit reporting agencies.

The credit reporting agencies organize and store this information so that it can be referred to in the future, with your consent. Your credit file contains all the information that a credit reporting agency has received from companies that have extended credit to you.

For example, it might include a listing of your credit cards or lines of credit, along with a history of whether or not you have paid on time. If you have declared bankruptcy, that fact will also appear. If you did not pay a bill and your account was sent to a collection agency, that will show on your credit file. In summary, your credit file is a report of your financial history and performance with credit grantors.

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Why is my credit file important?

When you apply for credit or want to open an account, the credit grantor wants to be sure that if they lend you money they will be paid back. The more your credit file demonstrates that you pay your debts on time, the more desirable you become as a potential customer.

If you have fallen behind in the past, a credit grantor wants to see how you have been managing your debt since then. Your credit file also shows how much you have already borrowed. Credit grantors want to evaluate your financial capacity to make monthly payments. No responsible lender will want to over-lend or encourage customers to take on more debt than they can pay back.

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What information does a consumer credit report contain?

Here is a general overview of the different sections in a consumer credit report:
1. Personal Identification
  Contains key identification information, such as your name, address, birth date and Social Insurance Number (SIN).
2. Inquiries
  Lists all individuals or organizations that have requested a copy of your credit file in the past three years.
3. Public Record Information
  Contains information about secured loans, bankruptcies and/or judgments.
4. Third-Party Collection Agency
  Contains information about any involvement with a collection agency trying to settle a debt.
5. Trade Information
  Provides details of your credit transactions and shows whether payments are being made. Each of these "trade" items is evaluated by the credit grantor.
  The evaluations are based on industry standard ratings, the most common of which use a range from R0 to R9. R0 indicates you are too new to rate; R1 indicates that you pay within 30 days of billing or as agreed; R9 indicates a bad debt, collection or bankruptcy.
6. Consumer Statement
  This is where you can add a brief comment about any information in your file. For example, if you have an R9 rating, you may want to explain that you suffered a setback due to illness, temporary unemployment or other extenuating circumstances.


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How is this information gathered and who keeps it?

Credit information is gathered by credit reporting agencies, sometimes called credit bureaus. There are two major credit reporting agencies in Canada: Equifax Canada Inc., and Trans Union of Canada, Inc. Governed by provincial and federal laws, they store and maintain credit information about individual Canadians for use by members of the credit reporting agency. These members include banks, financing companies, auto leasing companies, credit card companies, retailers, etc.

Credit grantors update individual credit files regularly by providing information to credit reporting agencies about their customers' credit and payment activities. This ensures that credit files remain up-to-date and as complete as possible.

Other sources of the information contained in your credit report can include collection agencies and public records from courthouses across the country.

Whether you make or miss a payment, this fact will be added to your file. When you give permission to a credit grantor to look at your credit file, this history is available for them to review.

Years ago, the gathering and storing of credit information was done manually - credit bureau employees created actual paper files and updated them one at a time. Now, credit grantors send data in electronic form to a highly efficient and secure computer environment.

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How can I get a copy of my credit report?

To obtain your credit report, either download a copy of the request form that we've included on this web site or call the two largest Canadian credit reporting agencies, Equifax Canada Inc.
1 800 465 7166 and Trans Union of Canada 1 800 663 9980.

Once you have placed your request, the credit reporting agency will then mail your report to you. It is recommended that you get your report from both agencies to ensure accuracy.

For more information on credit-related topics, return to Frequently Asked Questions.

Download Sample Credit Report (PDF File).
Download Description of a Credit Report (PDF File).
Can I get my credit report on-line?

Consumers may obtain a copy of their credit report, plus credit score, and a score analysis on-line in Canada, for a fee. Equifax Consumer Services Canada www.econsumer.equifax.ca provides consumers on-line, real-time access to their credit information. Consumers provide personal information during the order process for their credit information so that Equifax can verify their identity and immediately deliver their credit report. The consumer information collected online may be used later to provide relevant notifications and special information to each consumer.

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Who can access my credit file?

Equifax is the largest credit-reporting agency in Canada and receives over 40 million requests for file information each year. Federal and provincial laws are very specific as to who can review your credit file and for what purpose. An individual or company may only obtain a copy of your credit file with your consent or after having told you that they will be reviewing your file. A company must have a legitimate business reason and a permissible purpose, as stated in government regulations, to obtain your credit file.

When you apply for a loan or credit card you are usually asked to complete and sign an application form. An application normally includes written consent that gives permission to the credit grantor to check your credit file when you first apply and for as long as the account is open. In addition to your name, an application often asks for your date of birth, your address and a previous address if you've recently moved - all of which helps to locate your credit file at a credit reporting agency.

Each time a member of the credit bureau requests your file, the request is noted on your file as an inquiry. You can therefore see a complete record of who has requested your credit file and when.

A credit reporting agency may only provide a copy of your file when the request relates to the extension of credit, collection of a debt, housing rental, an application for employment or for insurance purposes. Since your credit file contains only factual information, it is important to remember that each of the companies requesting your credit file will interpret those facts in its own way to arrive at a decision.

Of course, you also have the right to obtain a copy of your credit report.

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Why is some information on my credit file outdated?
• Employment
  Employment information is reported from applications for credit and therefore is not updated regularly.
• Balance
  This reflects your balance on the date the submitter last reported the information. Many credit grantors supply information on a monthly basis, so the balance shown may not be your current balance.
• Old account still reported
  A credit file is a history of your payment habits. All accounts, paid or unpaid, remain on your file for six years from the date of last activity.
• Duplicate Accounts
  There may appear to be duplicate accounts reported in your credit file. This needs to be examined carefully, because some credit grantors issue new account numbers with every loan renewal.
  Also, when you report a credit card as lost or stolen, your credit grantor will issue a new card with a new number, resulting in a new item on your file.
• Accounts included in my bankruptcy still show up in the credit file
  All items included in bankruptcy remain on file for six years from the date of last activity.


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How can I make sure my credit file information is accurate?

Request a copy of your credit file. If you check your credit file periodically, especially before making any major purchases or applying for credit, you can make sure there are no surprises ahead. If you believe your file contains an inaccuracy, you can take steps to correct it. Simply provide information about the disputed item to the credit reporting agency.

If you find unfavourable, but accurate facts in your file, you may be able to prevent a potentially embarrassing situation by discussing this with the lender when you fill out an application. You can also initiate immediate action to re-establish good credit. You might consider adding a short qualifying statement to your credit file to explain the circumstances surrounding the negative information in your file.

How can I correct an inaccuracy in my Equifax credit file?

First you will need to complete a Consumer Credit Report Update Form. Once complete begin by contacting Equifax.
1. Telephone Equifax at 1 800 465 7166 between 8:00am and 5:00pm ET
2. Write to:
  Equifax Canada Inc.
  Consumer Relations Department
  Box 190 Jean Talon Station
  Montreal, Quebec
  H1S 2Z2
3. Send an e-mail request to: consumer.relations@equifax.com
  If you use an e-mail program other than Netscape or Internet Explorer, please copy and paste the address into your preferred e-mail client.

After we receive your call, letter or e-mail request, we begin the Dispute Resolution process.

First, we review and consider the information you have sent us about your dispute. If this initial review does not resolve the problem, we will continue our investigation. This involves contacting the submitter of the disputed information on your behalf to review the details. They will investigate and report their conclusions to us. Based on their findings, we may make changes to your credit file. If the disputed information is correct, we will not make any changes.

We will send you a revised credit report if changes are made as a result of the Dispute Resolution process.

We will also send your revised credit file to any company that requested your credit file 60 days prior to the change. In some cases, it may be a period longer than 60 days.

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What if I am still not satisfied with an item in my file?

If you still do not agree with an item after it has been verified with the submitter, you can send us a brief statement explaining that you disagree. We will add this statement to your credit file and it will be shown every time your credit file is reviewed.

If you have added a comment, you have the right to ask us to send your revised credit file to any company that requested your credit file 60 days prior to the change.

Important Note:

You do not need to pay a third party to obtain, discuss, review or make changes to your credit report. You have the right to access your information and make changes to your file if there is an inaccuracy or if you want to include a comment.

It is impossible for a third party to make changes in your file if the facts have been correctly reported. There are individuals and companies that claim they can fix a bad credit file. This is not the case. If a file includes accurate, yet negative information about your credit history, this information cannot be changed. Information will only be changed when your file contains an inaccuracy.

How long does Equifax keep information in my credit file?

CREDIT INQUIRIES TO THE FILE: An Inquiry made by a Creditor will automatically purge three (3) years from the date of the inquiry. The system will keep a minimum of five (5) inquiries.

CREDIT HISTORY AND BANKING INFORMATION: A credit transaction will automatically purge from the sytem six (6) years from the date of last activity.
All banking information (checking or saving account) will automatically purge from the system six (6) years from the date of registration.

VOLUNTARY DEPOSIT - ORDERLY PAYMENT OF DEBTS, CREDIT COUNSELING: When voluntary deposit – OPD – credit counseling is paid, it will automatically purge from the sytem three (3) years from the date paid.

REGISTERED CONSUMER PROPOSAL: When a registered consumer proposal is paid, it will automatically purge three (3) years from the date paid.

BANKRUPTCY: A bankruptcy automatically purges six (6) years from the date of discharge in the case of a single bankruptcy. If the consumer declares several bankruptcies, the system will keep each bankruptcy for fourteen (14) years from the date of each discharge. All accounts included in a bankruptcy remain on file indicating “included in bankruptcy” and will purge six (6) years from the date of last activity.

JUDGMENTS, SEIZURE OF MOVABLE/IMMOVABLE, GARNISHMENT OF WAGES: The above will automatically purge from the system six (6) years from the date filed.

COLLECTION ACCOUNTS: A collection account under public records will automatically purge from the sytem six (6) years from the date of last activity.

SECURED LOANS: A secured loan will automatically purge from the system six (6) years from the date filed.

(Exception: P.E.I. Public Records: seven (7) to ten (10) years.)

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Why do we need credit reporting?

Every day, Canadians purchase goods or services using credit. The decision to extend credit is made by a "credit grantor" such as a bank or store. Most often, this decision involves reviewing your credit file, which is obtained from a credit reporting agency, such as Equifax. With your permission, credit grantors review your credit file to determine your credit history and assess your credit-worthiness.

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What is a rating?

Every piece of credit history information in your credit file is assigned a rating by the credit grantor. The most common ratings are "R" ratings. These are known as North American Standard Account Ratings and are the most frequently used. The "R" indicates that the item being described involves revolving credit. If you always pay on time, it will be coded an R1. If an amount was written off because you never paid it back, it is coded R9. The R ratings are a coding system that translates "on time", "one month late", "two months late", etc., into two-digit codes.
Rating What it Means
R0 Too new to rate; approved but not used
R1 Pays (or paid) within 30 days of payment due date or not over one payment past due
R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due
R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due

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R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due
R5 Account is at least 120 days overdue, but is not yet rated "9"
R7 Making regular payments through a special arrangement to settle your debts
R8 Repossession (voluntary or involuntary return of merchandise)
R9 Bad debt; placed for collection; moved without giving a new address


Other rating indicators that might be found on a report are "I" for installment credit or "O" for open credit line.

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Does my file tell me how I will be rated?

Your file will not tell you how an individual credit grantor will evaluate you as a potential customer. Each credit grantor has its own policies for making decisions about individual customers.

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What is an "inquiry"?

An "inquiry" shows the name of the company or individual who has requested your credit file. Each inquiry is listed on the credit file so that you know who has obtained a copy of it. In addition to checking your file when you first apply for credit, credit grantors typically request regular updates of your credit file after an account has been opened, when it is being renewed or for limit increases. These are listed as "update" inquiries in a separate section of your credit file. They are for your information only and are not displayed to other credit grantors.

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How can I protect my identity?

Identity fraud is on the rise, and it can happen to anyone. It can happen to you. Taking steps to limit your vulnerability to identity fraud is the best method of protecting yourself and safeguarding your credit file.

We've put together some tips to help you keep from becoming an identity fraud victim.

Limit the potential for fraud while using a credit card

When your credit cards are lost or stolen:
  • Keep a list of the names, account numbers and the expiration dates of your cards in a safe place. This will aid you when alerting your credit grantors about a lost or stolen card.
  • Call your credit grantors immediately upon discovering your cards are missing. Most have 24-hour toll-free numbers for this purpose. If you re-open the account, ensure they have your correct address.

When using your credit cards:
  • Carry only the identification and credit cards you need when traveling, whether locally or out of town.
  • Do not carry your credit cards with your chequebook.
  • If your chequebook is lost or stolen, call your bank. Inform them of the cheque numbers missing.
  • Sign your credit cards in permanent ink as soon as you receive them.
  • When making a purchase, keep your card in view at all times. Retrieve it as soon as the transaction is completed and make sure it is your card.
  • Do not sign a blank charge slip.
  • Always save your receipts, never leave them behind. Avoid saying your account number aloud if others can hear.
  • Only provide your ID and credit card information over the phone to reputable companies where you have initiated the call.
  • If you receive a call from someone claiming to represent your credit card issuer and the caller asks for your account number, do not provide it. If the caller is employed by the issuer, they will know your number.

If your Social Insurance Card is missing, contact your employer or your local Human Resources Development Canada (HRDC) office immediately.

If your Driver's License is missing, contact your local driver and vehicle license issuing office. You should also report it to your local police.

How to manage your credit card statements:
  • Check your statement as soon as it arrives to ensure the charges are correct.
  • Keep statements in a safe place. They contain sensitive information.
  • Before discarding old statements, even of closed accounts, rip them into small pieces or shred them.
  • If your statement does not arrive, call your credit card issuer.

Limit the potential for fraud when using ATMs and PINs
  • Shield your numbers while using the ATM.
  • Never leave your receipts behind.
  • Choose a PIN that is unique. Use a number other than your birthday, Social Insurance Number or other obvious number.
  • Never write down your PIN in your chequebook or on your cards. It is best to memorize it.

Limit the potential for fraud when using the mail service
  • If your mail stops arriving, check with Canada Post. Sometimes a change of address is submitted by a fraud perpetrator in an attempt to get your mail, or steal your identity.
  • If you apply for a new credit card and it does not arrive, contact the issuer.

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What can I do if I suspect I am a victim of identity fraud?

If you have lost or had your personal identification stolen, or if an institution has contacted you regarding suspected fraud activity, please call Equifax toll-free at 1 800 465 7166 or 514 493 2314. We will add a statement to your file to alert credit grantors that you may be a victim of fraudulent activity.

This may mean that the next time you apply for credit, you may be questioned more thoroughly. The credit grantor wants to make sure that you are, in fact, the person you say you are. The additional questions that might come your way are asked because of the "fraud alert" on your file.

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Why was I denied credit?

Equifax neither grants nor denies any application for credit. We simply provide a factual account of your credit history to credit grantors. The credit grantor reviews this information and makes an independent decision based on its own policies. You can call Equifax to establish whether there was negative information on your credit file that may have prevented you from receiving credit.

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Does Equifax use consumer credit information to market consumer products and services, or sell my name to direct mail companies?

Equifax does not do this.

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How does divorce affect consumer credit?

A divorce decree does not supersede the original contract with the creditor, and does not release you from legal responsibility on your accounts. You must contact each creditor and seek their release of your obligation. Only after that release can your credit history be updated accordingly.

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What is a credit score?

A credit score is a numeric value assigned by credit grantors to indicate how likely someone is to pay back a loan or credit card according to the agreed repayment terms. It is an indicator of the level of risk that a borrower might represent. It is used as a predictor of future performance.

Much like a life insurance company that reviews your medical history to determine the insurance risk when you apply for a life insurance policy, credit grantors review your financial history to determine your credit risk. Credit grantors often use an automated scoring process to help make that risk assessment.

A credit score is only one piece of information credit grantors use when evaluating your application for credit. Some credit scores may be based solely on information in your credit file. Other scores may be based on a combination of credit file information and other information you supply on your credit application. Generally, scores use your past credit history to help predict how you might manage credit in the future.

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Is the credit score part of my credit file?

The credit score is not part of your credit file.

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How is my credit file affected if I was a co-signer on a loan and the person on whose behalf I co-signed fell behind in their payments?

If you are a co-signer to a loan, the activities related to that loan will usually be reported by the credit grantor on both the file of the primary borrower and the co-signer. However, reporting policies may vary amongst credit grantors.

Therefore where there is a default in payment, a note indicating that the loan is in default will appear on the credit file of the co-signer.

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Can I get advice and assistance if I have credit problems?

Yes, you may obtain assistance from various organizations. For example, Consumer Credit Counselling Services (CCCS) are non-profit organizations that offer free or low-cost financial counselling to help people solve their financial problems. For more information, see Helpful Links.

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How can I establish and maintain a good credit rating?

There are a few simple ways to keep a solid credit rating. First, pay your bills promptly and always meet payment due dates. Borrow only the amount you can afford to repay. Draw up a budget to control your spending. If you have debts, pay them off as scheduled or even ahead of schedule. And finally, review your credit file regularly to stay informed about the details in your credit file.

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Should I go to a Credit Repair Clinic to fix my poor credit rating?

You may see advertisements for Credit Repair Clinics in the classified sections of newspapers, with claims that they can "fix" bad credit reports, for a fee. Only responsible credit practices over time can improve a poor credit history. For an explanation of how and when information in a credit file may be changed, click here.

Credit counseling organizations are not the same as Credit Repair Clinics, and can offer you professional advice on how to improve your credit practices. For more information on several reputable credit counselling agencies, go to Helpful Links.

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What if I am planning to do a major renovation or make a large purchase; can I protect myself from dealing with a company that may not be reputable or commercially viable?

Equifax has the single largest commercial credit database about Canadian companies. We have credit reports on over 2 million businesses. You can order a commercial credit report about a company with which you are planning to do business.