A credit score is essentially a numerical representation, obtained through careful analysis of a person’s credit files, of the creditworthiness of that person.
Assessing an individual’s credit score
A credit score is typically attributed by a credit reporting agency, such as Equifax or TransUnion in Canada, which tracks how the general population pays back debt, such as credit cards, lines of credit, bank loans and car loans. The company then applies its research to a statistical analysis of an individual’s likelihood of being able to pay back credit, based on the overall behaviour of the population.
A person’s resulting credit score represents that particular moment in time and can change based on subsequent behaviour. For instance, missed or late payments, or numerous credit accounts nearing their limits, will lower your score, while consistently paying your debts on time will help improve your score.
Credit scores typically range from 400 to 900, with a good score considered to be 600 and higher. A credit score of 750 and above is considered to be excellent.
How are credit scores used?
Lenders, including banks and credit card companies, typically use credit scores to evaluate the potential risk of a consumer. Lenders use credit scores to determine things such as who qualifies for a loan and at what interest rate, while telecom companies, insurance companies, landlords and government agencies also use credit scores to assess risk.
Reviewing your credit score
In Canada, consumers can obtain a free copy of their credit report any number of times in a given year, as long as the request is made in writing. Such requests are noted in the credit report, but have no effect on a credit score.
Resources:
For more tips on personal finance, sign up for the National Bank newsletter .
