A credit score is a
statistical formula that translates personal information from your
credit report and other sources into a three-digit score. For
example, when you fill out a loan application, pieces of information
from the application along with information from your credit report
will be used to compute a score that indicates to the lender the
statistical probability that you will become delinquent on the loan.
Some scores that
lenders use are based strictly on the data in your credit report;
these are known as "bureau scores". The most widely-used bureau
scores in Canada were developed by Fair, Isaac and Co.,
headquartered in San Rafael, California.
It is important to
understand that a credit score is only one criterion that a lender
will use in making decisions. For example, in mortgage lending, the
lender will take into account the property being purchased and the
homeowner's equity. Many lenders look at their relationship with the
customer, which may include other financial services. Each lender
will have its own policies and you should feel comfortable asking a
credit institution about these. Our work with credit grantors has
shown us that most lenders want their customers to have a better
understanding of their lending processes.
What is a FICO Score?
The FICO® score,
developed by Fair, Isaac and Company, Inc. (the pioneer in credit
scoring) is a number between 300 and 900 that lenders use to
determine your credit risk. A FICO score is a snapshot of your
credit risk at a particular point in time. The higher your credit
score the more likely you are to be approved for loans and receive
favorable rates.
Canada's largest financial institutions use FICO scores to make
millions of credit decisions each year.
Equifax and Fair, Isaac demystified credit scores by being the first
to provide consumers access to their FICO credit score - the credit
score used by the vast majority of lenders to determine a consumer's
credit risk.
Your credit score is
an important indicator of your creditworthiness. In general, the
higher your score, the lower the probability that you will become
delinquent on credit extended to you. And while many lenders use
bureau scores to help them make lending decisions, each lender will
base its decision on more than just the score.
Lenders use your
credit score to determine if you are a good candidate for credit and
likely to pay your bills. In the event of bankruptcy, it will also
help them determine what type of repayment plan is best for you.
Because your credit
report is updated every day, your bureau score is recalculated
continuously. So your credit score from a month ago is probably not
the same score today.
- Payment history - Indicates
whether you have made your credit card payments, loan payments and
other payments on time
- Amounts owed - Compares how much
you owe to your credit limits with various lenders
- Length of time in file -
Indicates how long you have had credit accounts
- New credit - Shows how often you
are looking for new credit and how you handle accounts you have
recently opened
- Type of credit - Considers the
type of loans you have - car loans, lines of credit, credit card
balances
*Note: Any Mortgage information that
may appear in your credit report is not used to calculate
your credit score.
nsumer's credit risk.
CREDIT
REPAIR - YOUR CREDIT REPORT & FICO SCORE
