7 Important Credit Score Facts

I know you’re probably very thrilled to see another article about credit and credit scores. However, I do get a lot of questions regarding how and what affects a person’s credit report. Therefore, if this article answers just one question for one reader, then I’m happy. So, here we go.

A credit report is a summary of a person’s credit history. If you have ever applied for and obtained a credit card, taken out a loan or bought something using the very popular “buy now, pay later” plans available by many furniture companies, you have a credit report. A credit report is used by potential lenders when evaluating if you are creditworthy – that is, if they should lend you money.

Part of the report is a credit score. It is a three digit number and is calculated using information in your credit report. Credit scores range from 300 to 900 points – the best score is 900. Your score is created when either yourself of a creditor pulls your credit report. It is then discarded and recalculated the next time your report is requested.

In Canada, there are two major credit reporting agencies – Equifax and TransUnion.

The following are some frequently asked questions about credit scores and ratings:

1: “Why is my credit score higher when I pull it compared to when it is pulled by a bank, lender or credit card company?”

A credit score you obtain when you pull your own credit report most probably will not be the same as the score produced for a potential credit grantor. This can happen even if they are created at the same time using the same information in your credit report. The credit reporting agencies use a different scoring algorithm when a report is pulled by an individual versus a report pulled by a possible lender.

2: “Can I increase my credit score if I close my credit cards that I don’t use?”

Believe it or not, if you close a credit facility that you have had for several years it could actually lower your score. This is because credit rating is calculated by (1) taking into consideration how long an account has been open, (2) if you make your payments on time and (3) the balance in comparison to the limit. If you are thinking of closing an account, you should consider closing a more recent card and leaving the older card open.

3: “I should have excellent credit because I use cash for everything and don’t use credit cards.”

Not true. Believe it or not, having no credit history is just as bad as having bruised credit. Lenders look at mortgage shoppers with no debt or no credit cards as high risk. With no credit you do not have a credit report and therefore, the lender cannot evaluate your creditworthiness.

The minimum requirement is to have two reporting credit facilities (credit cards and/or loans) for at least one year.

4: “Are all cards created equal?”

No. Credit cards issued by retailers are considered a higher risk than credit cards issued by banks. If you hold several cards from different retailers, it could negatively affect your credit score. Consider replacing retail cards with Visa, MasterCard or American Express cards.

5: “I pay my credit cards on time, but my score is low. Why?”

Credit scores are calculated using the three points noted in question two. In regards to the balance in comparison to the limit, try and keep the balance to below 65 percent of your limit.

6: “Will shopping around for a car or mortgage hurt my score?”

When you are shopping around for a car or a mortgage, try to do it within a two-week period. In regards to calculating credit scores, usually all inquiries made during this time are combined and treated as a single inquiry. However, everyone who pulls your credit report will be listed on your history section of your report.

For me personally, when I see several banks and mortgage brokers, I wonder if my clients are shopping around for a better mortgage or if they have been declined elsewhere.

7: “Will paying off a collection item increase my credit score?”

Of course; paying off a collection item is a positive step towards reestablishing credit worthiness. However, paying out the debt does not mean it will be deleted from your credit report. Unfortunately, the collection item will remain on your report for a minimum of seven years.


For further information regarding credit reports and scores, download this free booklet published by The Financial Consumer Agency of Canada titled Understanding your Credit Report and Credit Score.

Do you have a credit question not answered in this article? Send me an email at I’d be glad to help.