Your credit score includes three powerful numbers, known as your FICO score, that can make a lot of difference in your life. If your credit score is low, you may not be able to get a loan, and if you do, high interest rates will apply. You will have difficulty accessing credit cards, and it may even hinder your ability to rent an apartment or obtain a specific job.
Canadians with similar financial resources had different results depending on which website they used. The four websites used to check creditworthiness in Canada are: Credit Karma, which is offered for free, Borrowell, which is also free, Equifax and TransUnion, both of which cost $20 a month for credit monitoring.
Some Canadians who did their due diligence in comparing credit scores said Borrowell said they saw a below-average score with a credit score of 637, while their Credit Karma score was 763 with a “very good” label attached. Moreover, Equifax gave a score of 684 and TransUnion had a credit score of 686.
What is FIKO?
Your FICO score, often called your Beacon score, is a three-digit number that determines whether your credit is good or bad. FICO, short for Fair Isaac & Company, is a US-based company that sells its proprietary scoring methodology to Equifax and TransUnion. Unlike these two companies, FICO is not a credit bureau and does not collect credit information on Canadians. As a result, your FICO score is always based on information collected by credit bureaus and helps lenders decide whether lending money is a risk. Your FICO score will determine how much you can borrow, what the interest rates are, and how long you will have to repay the loan.
When you apply for a loan, lenders can use your FICO Score for a quick and consistent way to find out about your finances. It summarizes your credit report and measures several things, such as:
- How long you have your loan.
- The amount of credit you have.
- How much available credit is being used.
- If you paid on time.
FICO scores are calculated based on your credit information. You can increase your score with good habits, such as keeping less than 30% of your debt at any given time and paying your bills on time.
The FICO score not only helps lenders make smarter and faster decisions about who they lend money to, but it also helps people like you get fair and quick access to credit when you need it. Because FICO scores are calculated based on your credit information, you have the ability to influence your score by paying your bills on time, not taking on too much debt, and making smart credit choices.
Is a FICO score the same as a credit score?
Yes, both go hand in hand. However, Canadian consumers do not have access to it. While Borrowell provides access to Equifax’s proprietary credit score, Credit Karma displays TransUnion’s own credit score. Both Equifax and Transunion also provide FICO credit scores, but they only provide them to lenders; they do not make it available to Canadian consumers.
FICO Score Ranges
Your credit score isn’t set in stone for life. It changes over time and your payment behavior. However, there are ranges that tell lenders whether you have poor, fair, good, very good or exceptional credit.
Poor 580 or lower: Your score is below average and lenders will view you as a risky borrower.
Average 580-669: Your score is still below average, but you can still get approved for loans.
Good 670-739: Slightly above average and most lenders would consider this a good score.
Very good 740-799 Very good: Above average, and lenders will view you as a very reliable borrower. You will probably be offered good interest rates.
Exceptional 800+: Well above average and lenders will see you as very reliable, offering the best interest rates available.
Hard and soft credit checks
Most Canadian lenders, including major banks, use the FICO Score. Consumers cannot access their FICO score without going through a large bank. You have the option of a soft and hard credit check, and your FICO score is called a hard credit check. A hard check is when a company runs a credit check, but the lender cannot share that report with you. However, they can talk about the information they see and provide you with insights.
A thorough check may be necessary, but it carries risk because it could negatively impact your credit score. If you make a lot of difficult inquiries in a short period of time, lenders may consider you a risk. However, a soft check does not affect your credit score.
You’ll find that your hard credit check will give you a true FICO score, while a soft check is less likely to do the same. You may have much better credit than a soft credit score provides. Lenders use the FICO scale, which gives a more concise score than a soft credit check. The FICO score and percentages seen by the lender are as follows:
Payment history: 35%
Debt amount: 30%
Length of credit history: 15%
New loan: about 10%
Types of loans used: approx. 10%
What you’ll see when you, as a Canadian, take advantage of a soft credit check:
Often, when you request a credit check through free services like Borrowell and Credit Karma, you simply receive a 3-digit score that represents your creditworthiness. You may get some insights, but they won’t necessarily explain everything. That said, Transunion has additional information that tells you things like how many credit checks are on your file, your shopping habits, and other useful information.
Complicated system
Free services that allow Canadians to get a free credit score, such as Borrowell and Credit Karma, do not charge any fees. They make money by arranging loans and credit cards through companies that offer credit products. However, the FICO score is the gold standard for assessing creditworthiness. This is reflected in the fact that lenders, such as the large banks in Canada, use it as a method of determining the risk involved in lending to individuals.
Canadians cannot access their scores, Americans can do so using the FICO website. Once they receive a credit score from FICO, it does not negatively impact their credit score. FICO has openly stated that it is willing to provide the same access to Canadians, but it all depends on lenders in Canada.
A better approach to your credit report
Experts say a better approach to monitoring your financial health would be to focus more on your credit report rather than your credit score. A credit report allows for greater accuracy and detailed information about each person. Your credit report fully describes your financial situation, including a list of the following items:
- Bank accounts
- Credit cards
- Inquiries from lenders
- Bankruptcy
- Student loans
- Mortgages
- Payments on time
- Other debts
Instead of focusing all your attention on getting a high credit score, think about your spending patterns. If you are modest with your spending, this will reflect well and increase your credit score. Paying off debt and increasing savings are ways to improve your credit score and at the same time improve your financial situation.
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Why does FICO score matter?
A FICO score helps you gain access to credit, which you may need for education, mortgages, or a car. A good score can save you thousands of dollars because you’ll pay lower interest and fees. With a high score, lenders are willing to offer the best rates because it is considered to be low risk when it comes to repaying the loan.
Lenders consider a score of 670 or better to be good, low-risk credit. The higher the score, the lower the risk. Since your credit report is constantly changing, it also means that your FICO score is updated. So if you don’t have a good credit score because of them, that can change quite quickly.
