FAQ About FICO® Scores in Canada

About Credit Scoring

When applying for credit—such as a credit card, auto loan, or mortgage—the company from which you are seeking credit checks your credit report from one or both Canadian credit reporting agencies (CRAs). In addition, they will most likely use a credit score, such as a FICO® Score in their credit risk evaluation. Each lender has its own decision- making process and policies when reviewing a credit application. Most lenders consider a FICO® Score, along with additional information from one or both credit reports or supplemental information you provide with your application, such as your income.

What is a credit score?

A credit score is a number summarizing your credit risk, based on your credit data. A credit score helps lenders evaluate your credit profile and influences the credit available to you, including loan and credit card approvals, interest rates, credit limits, and more.

What is a credit report?

Although each CRA formats and reports this information differently, all credit reports contain the same categories of information.

• Identifying Information - Your name, address, Social Insurance Number, date of birth, and employment information. This information is only used to identify you, not used to calculate FICO® Scores. Updates to this information come from information you supply to your lenders.
• Credit Accounts - Most lenders report information about each credit account you have established with them. They report the type of account, the date it was opened, the credit limit or loan amount, the account balance, and your payment history.
• Credit Inquiries - Your credit reports list the inquiries made by lenders. When you apply for a loan, you authorize your lender to ask for a copy of your credit reports.
• Public Records and Collections - Public Records and Collections – CRAs also collect public record information from courts, and delinquencies reported by collection agencies.

How do I check my credit report for free?

Introduction to FICO® Scores

About FICO

FICO, formerly known as Fair Isaac Corporation, is the company that invented FICO® Scores. Starting in the 1950s, FICO sparked a revolution in credit risk assessment by pioneering credit risk scoring for credit grantors. This new approach to measuring risk enabled banks, retailers, and other businesses to improve their performance and expand consumers’ access to credit. Today, FICO® Scores are widely recognized as the industry standard for measuring credit risk.

It is important to note that while FICO works with the CRAs to provide your FICO® Scores, it does not have access to or store any of your personal data or determine the accuracy of the information in your credit file.

About FICO^® Scores

FICO® Scores are the most widely used credit scores. Each FICO® Score is a three-digit number calculated from the data on your credit reports at the two CRAs—Equifax and TransUnion. Your FICO® Scores predict how likely you are to pay back a credit obligation as agreed. Lenders use FICO® Scores to help them quickly, consistently, and objectively evaluate potential borrowers’ credit risk.

Why do FICO^® Scores matter?

Lenders use credit scores to help them determine if you are a risky borrower and which terms (rates and conditions) they may offer you. Having a good credit score and keeping track of it regularly may help get the best conditions when applying for a credit card or a loan.

What are the minimum requirements to calculate a FICO® Score?

A credit file must contain these minimum requirements:

• At least one account that has been open for three months or more*
• At least one account that has been reported to the CRA within the past six months*
• No indication of death on the credit file.

*Deferred student loans are not eligible to satisfy this criterion.

Do I have more than one FICO® Score?

To keep up with consumer trends and the evolving needs of lenders, FICO periodically updates its scoring model, resulting in new FICO® Score versions being released to the market every few years.

Why is my FICO® Score different than other scores I have seen?

There are many different credit scores available to consumers and lenders. FICO® Scores are the credit scores used by lenders, and different lenders may use different versions of FICO® Scores. In addition, FICO® Scores are based on credit file data from a CRA, so differences in your credit files may create differences in your FICO® Scores.

What is a good FICO® Score?

FICO® Scores generally range from 300 to 900, where higher scores demonstrate lower credit risk, and lower scores demonstrate higher credit risk. What’s considered a “good” FICO® Score varies, since each lender has its own standards for approving credit applications, based on the level of risk it finds acceptable. So, one lender may offer its lowest interest rates to people with FICO® Scores above 710, while another may only offer it to people with FICO® Scores above 760.

The chart below provides a breakdown of ranges for FICO® Scores found across the Canadian consumer population. Again, each lender has its own credit risk standards, but this chart can serve as a general guide of what a FICO® Score represents.
 

FICO’s research shows that people with a high FICO® Score tend to make their payments on time each month.

• 300-579: Poor - well below average, lenders consider this borrower risky.
• 580-669: Fair - below average, some lenders will approve loans with this score
• 670-739: Good - near average, most lenders consider this score good.
• 740-799: Very Good - above average, lenders consider this borrower very dependable.
• 800-900: Exceptional - well above average, lenders consider this borrower exceptional.

Payment History

Approximately 35% of a FICO® Score is based on payment information on many types of accounts (for example: credit cards, retail accounts, installment loans, and finance company accounts)

• Public Records and collection items.
• Details on late or missed payments (“delinquencies”), public records, and collection items.
• Number of accounts with no late payments, or currently paid as agreed.

How do late payments affect FICO® Scores?

FICO® Scores consider late payments in these general areas; how recent the late payments are, how severe the late payments are, and how frequently the late payments occur. This means that recent delinquencies could be more damaging to a FICO® Score than several late payments that happened a long time ago.

You may have noticed on your credit reports that late payments are listed by how late the payments are. Typically, creditors report late payments in one of these categories: 30 days late, 60 days late, 90 days late, 120 days late, 150 days late, or charge off. While a 90-day late is worse than a 30-day late, the important thing to understand is that people who continually pay their bills on time tend to appear less risky to lenders.

A history of payments is the largest factor in FICO® Scores. Sometimes circumstances cause people to be unable to keep current with their bills—maybe an unexpected medical emergency or losing a job. Creditors and legitimate credit counselors may be able to provide direction to people when they are having trouble responsibly managing their financial health.

Amounts Owed

Approximately 30% of a FICO® Score.

• Amount owed on all accounts.
• Number of accounts with a balance.
• Total credit line used on revolving accounts.
• Amount still owed on installment loans, compared with the original loan amounts.

What is Credit Utilization

Credit utilization is one of the most important factors evaluated in this category, it considers the amount you owe compared to how much credit you have available.
 

Having credit accounts with an outstanding balance does not necessarily mean you are a high-risk borrower with a low FICO® Score. A long history of demonstrating consistent payments on credit accounts is a good way to show lenders you can responsibly manage additional credit.

Why does Credit Utilization matter?

While lenders determine how much credit they are willing to provide, you control how much you use. FICO’s research shows that people using a high percentage of their available credit limits are more likely to have trouble making some payments now or in the near future, compared to people using a lower level of available credit.

What’s the ideal utilization ratio?

There is no single utilization percentage that equates to optimal points. Generally, lower utilization means less credit risk and has a positive effect on FICO® Scores.

Length of Credit History

Approximately 15% of a FICO® Score. In general, a longer credit history will increase a FICO® Score, all else being equal. However, even people who have not been using credit for long can get a good FICO® Score, depending on what their credit report says about their payment history and amounts owed. Regarding the length of history, a FICO® Score considers:

• How long credit accounts have been established? A FICO® Score can consider the age of the oldest account and the average age of all accounts.
• How long since specific credit accounts have been established?
• How long has it been since you used certain accounts?

How is a credit history established?

There are a few ways to establish a credit history, including the following.

• By applying for and opening a new credit card account, a person with no or little credit
  history may not get very good terms on this credit card—such as a high annual percentage rate (APR). However, by charging small amounts and paying off the balance each month, you may avoid paying interest while establishing a solid payment history.
• Those unable to get approved for a traditional credit card may be able to open a secured credit card to build a credit history, provided the card issuer reports secured cards to the CRA. This type of card requires a deposit of money with the credit card company. Charges can then be made on the secured card, typically up to the amount deposited.

With both traditional and secured credit cards, keeping balances low and paying off balances each month, you will be on your way to building a positive credit file.

Credit Mix (aka Types of Credit in Use)

Approximately 10% of a FICO® Score. FICO® Scores consider the mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open a credit account you don’t intend to use. In this category, a FICO® Score considers:

• Types of credit accounts on the credit report. Whether there is experience with both revolving and installment accounts, or has the credit experience been limited to only one type.
• Number of accounts of each type. A FICO® Score also looks at the total number of accounts established.

New Credit

Approximately 10% of a FICO® Score is based on this information. FICO’s research shows that opening several credit accounts in a short period of time represents greater risk—especially for people who do not have a long credit history. In this category, a FICO® Score considers:

• Number of new accounts opened.
• Length of time since a new account was opened.
• Number of recent requests for credit made, as indicated by inquiries, to the CRAs.
• Length of time since inquiries from credit applications were made by lenders.
• Whether there is a good recent credit history, following any past payment problems.

Looking for an auto or mortgage loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. In general, FICO® Scores compensate for this shopping behavior in the following ways:

• FICO® Scores ignore auto and mortgage loan inquiries made in the 30 days before scoring, so the inquiries won’t affect the scores of consumers who apply for a loan within 30 days.
• After 30 days, FICO® Scores typically count inquiries of the same type (i.e., auto or mortgage loan) that fall within a typical shopping period as just one inquiry when determining your score.

What is a Credit Inquiry

When you apply for credit, you authorize those lenders to ask or "inquire" for a copy of your credit report from a CRA. When you later check your credit report, you may notice that their credit inquiries are listed. You may also see inquiries by businesses that you don't know. But the only inquiries that count toward your FICO® Scores are the ones that result from your applications for new credit.

• Soft inquiry — Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. FICO® Scores do not consider involuntary (soft) inquiries made by businesses with which you did not apply for credit, inquiries from lenders for account review purposes for which you already have a credit account, or your own requests to see your credit file.
• Hard inquiry — Hard inquiries include credit checks when you’ve applied for an auto loan, mortgage, credit card, or other types of loans. Each of these types of credit checks counts as a single inquiry. One exception occurs when you are “rate shopping”. Your FICO® Scores consider all hard inquiries within a reasonable shopping period for an auto or mortgage as a single inquiry. 

Will my FICO® Scores drop if I apply for new credit?

If so, they probably won’t drop much. If you apply for a credit account, a request for your credit report information (called a “hard inquiry”) will appear on your report. Looking for new credit can indicate higher risk by lenders, but multiple inquiries from auto or mortgage loan lenders within a short period of time are treated as a single inquiry rather than multiple inquiries and tend to have little effect on your FICO® Scores.

Does applying for a new account affect my credit?

Applying for a new account such as a revolving account—credit cards, including a retail credit card—authorizes a lender to review your credit information and creates a “hard” inquiry on your credit report. Most often one hard credit inquiry has minimal effect on a credit score. However, multiple hard inquiries in a short amount of time could hurt a score unless the multiple applications are meant to find the best deal for an auto or mortgage

What is a typical FICO® Score for someone new to credit?

FICO® Scores are generated by complex mathematical algorithms based on unique credit report data, so there is no “typical” or “entry-level” score. While someone new to credit may have difficulty scoring in the highest score ranges due to a limited number of active accounts and length of history, it is possible to have a FICO® Score that meets lenders’ criteria for granting credit. FICO® Scores consider the extent to which people can demonstrate a good track record of making payments on time. Payment history is more important for FICO® Scores (about 35%) than length of credit history (about 15%).

What is NOT included in FICO® Scores?

FICO® Scores consider a wide range of information on a credit report. However, they do NOT consider:

• Race, color, religion, national origin, age, sex, and marital status.
• Salary, or other employment information (however, lenders may
• consider this information separately).
• Where the consumer lives.
• Any interest rate being charged on a credit card or other account.
• Any items reported as child/family support obligations.
• Certain types of inquiries.
• Any information not found in the credit report.

Does income factor into FICO® Scores?

No. Income, and any other information not found on your credit reports, are not considered in FICO® Scores.

Are FICO® Scores unfair to minorities?

No. FICO® Scores do not consider your gender, race, nationality, or marital status. Independent research has shown that FICO® Scores are not unfair to minorities or people with little credit history. FICO® Scores have proven to be an accurate and consistent measure of repayment risk. 

How are FICO® Scores calculated for married couples?

Married couples don’t have joint FICO® Scores, they each have individual scores. The difference is that when you are single you usually only need to worry about your own credit habits and credit profile. However, if you and your spouse open a credit account under both your names, the spending and payment behavior on that account will impact both your FICO® Scores.

Better Understanding FICO® Scores

Best Practices

Your FICO® Scores are solely based on your credit decisions as captured in your credit reports. Every time you open a credit card or make a car payment, you're adding to your credit history that FICO® Scores evaluate. Therefore, it is important to develop healthy, responsible credit habits that will have a positive impact on your FICO® Scores.

What helps my FICO® Score the most?

Higher FICO® Scores are a result of healthy credit behaviors, and the best way to have higher FICO® Scores is to demonstrate healthy credit behaviors over time. Here are a few tips you can follow.

• Pay your bills on time. Delinquent payments and collections can have a major negative impact on your FICO® Scores. If you’re behind on payments, get current and stay current.
• Avoid collections. Paying off a collection account will not remove it from your credit report.
• Keep balances low. It’s okay to use your credit cards, just be careful about using a
  large percentage of your available credit — high utilization rates can have a major
  impact on your FICO® Scores.
• Do your rate shopping within a short period of time. FICO® Scores distinguish
  between a search for a single loan and a search for a mortgage or auto loan, in part by the length of time over which inquiries occur.
• Have credit and manage it responsibly. Ultimately, having a mixture of credit is a
  good thing — as long as you make your payments regularly and on time. Someone with no credit cards tends to be at higher risk than someone who has managed credit cards responsibly.
• Don't close unused credit cards to raise your scores. Your FICO® Scores consider the age of your accounts — the longer your credit history, the better.
• Check your credit reports and FICO^® Scores as often as you'd like, it will not lower your scores.

Will spending less and saving more affect a FICO® Score?

While putting more money towards savings is usually a good idea, it’s not necessarily going to affect your FICO® Scores. FICO® Scores do not consider the amount of cash you have, therefore the amount of money you save doesn’t affect your FICO® Scores.

As far as spending less, that could influence your FICO® Scores. For example, if you typically use your credit cards for purchases, then by spending less you may reduce your credit card balances over time. FICO® Scores factor in the balance on revolving credit accounts such as credit cards.

What impacts my FICO® Score the most when applying for new credit?

Applying for new credit only accounts for about 10% of a FICO® Score, so the effect is relatively modest. Exactly how much applying for new credit affects your score depends on your overall credit profile and what else is already in your credit reports. For example, applying for new credit can have a greater effect on your FICO® Scores if you only have a few accounts or a short credit history.

That said, there are a few things to be aware of depending on the type of credit you are applying for. When you apply for credit, a credit check or “inquiry” can be requested to check your credit standing. Let’s look at the common inquiries you might find in your credit reports.

• Credit Cards - If you only need a small amount, credit card companies will sometimes provide an increased credit limit on existing accounts. While a request for an increased limit may count as an inquiry just like opening a new card would, it won’t reduce the average age of your credit accounts, which is also important to your FICO® Scores.

  If raising the limit on an existing card isn’t an option, then applying for the fewest number of credit cards will have the least negative effect on your FICO® Scores. For example, if a person needed an extra $5,000, getting one card with a $5,000 limit has less effect on your score than getting two cards each with $2,500 limits. That’s because when applying for new credit cards, each application is counted separately as an individual inquiry in your credit file, and the more inquiries you have, the more that could hurt your FICO® Scores. Having more inquiries makes you look riskier to potential lenders.

• Home and Auto Loans - FICO® Scores do not penalize people for rate shopping for a home or car loan. During rate shopping, multiple lenders may request your credit reports to check your credit. But FICO® Scores de-duplicate these and consider inquiries within a reasonable shopping period for an auto or mortgage loan each as a single inquiry. Doing the entire rate shopping and getting the loan within 45 days, will reduce the effect on your FICO® Score.

How are FICO® Scores different from other credit scores?

Not all credit scores are FICO® Scores. Because FICO® Scores are widely used by lenders, knowing your FICO® Score is the best way to understand how potential lenders could evaluate your credit risk when you apply for a loan or credit. Other credit scores, which use scoring formulas different from FICO’s, may not give you an accurate representation of the scores your lender uses when assessing your credit profile.

Why do FICO® Scores fluctuate/change?

There are many reasons why a score may change. FICO® Scores are calculated each time they are requested, taking into consideration the information that is in your credit file from a CRA at that time. So, as the information in your credit file at that CRA changes, FICO® Scores can also change. Review your key score factors, which explain what factors from your credit report most affected a score. Comparing key score factors from the two different periods can help identify causes for a change in a FICO® Score. Keep in mind that certain events such as delinquent payments or public records can lower FICO® Scores quickly.

Can an account that is not in my credit report affect my FICO® Score?

Traditional FICO® Scores only consider accounts on your credit report and while your FICO® Scores capture a pretty accurate picture of your credit history, not every account is recorded. Your positive rental and utility payment history may not be listed in your credit reports, and if an account is not found on your credit report, it can’t affect your FICO® Score.

How will public records affect my FICO® Scores?

Adverse public records, which include bankruptcies and judgments, are considered a very negative event by FICO® Scores and will affect your FICO® Scores for as long as it is listed on your credit files. However, as the item ages, its effect on a FICO® Score gradually decreases.

Bankruptcy — If you file for bankruptcy, here are some things you should do to make sure your creditors are accurately reporting the bankruptcy filing:

• Check your credit files to ensure that accounts that were not part of the bankruptcy filing are not being reported with a bankruptcy status.
• Make sure your bankruptcy is removed as soon as it is eligible to be “purged” from your credit file.

Judgments — Creditors, collections agencies, and legitimate credit counselors may be able to provide direction, to people when they are having trouble managing their financial health.

Why are my FICO® Scores different for the 2 credit bureaus?

In Canada, there are two national credit bureaus (Equifax and TransUnion) that compete to capture, update, and store the credit histories of most Canadian consumers. While most of the information collected on consumers by the three credit bureaus is similar, there are differences. For example, one credit bureau may have unique information captured on a consumer that is not being captured by the other two, or the same data element may be stored or displayed differently by the credit bureaus.

When the scores are significantly different across bureaus, it is likely the underlying data in the credit bureaus is different thus driving that observed score difference. However, there can be score differences even when the underlying data is identical as each of the bureau's FICO scoring system was designed to optimize the predictive value of their unique data.

Keep in mind the following points when comparing scores across bureaus:

• Not all credit scores are FICO® Scores. Make sure the credit scores you
  are comparing are actual FICO Scores.
• The FICO® Scores should be accessed at the same time. The passage of
  time can result in score differences due to model characteristics that have a time-based component. Comparing a FICO® Score pulled on bureau "A" from last week to a score pulled on bureau "B" today can be problematic as the "week-old score" may already be "dated".
• All your credit information may not be reported to all three credit bureaus. The information on your credit report is supplied by lenders, collection agencies, and court records. Don't assume that each credit bureau has the same information about your credit history.
• You may have applied for credit under different names (for example, Robert Jones versus Bob Jones) or a maiden name, which may cause fragmented or incomplete files at the credit reporting agencies. While, in most cases, the credit bureaus combine all files accurately under the same person, there are many instances where incomplete files or inaccurate data (social security numbers, addresses, etc.) cause one person's credit information to appear on someone else's credit report.
• Lenders report credit information to the credit bureaus at different times, often resulting in one agency having more up-to-date information than another.
• Credit bureaus may record, display, or store the same information in different ways.

More FAQs By Credit Types

Mortgages

Do mortgages affect a FICO® Score?

FICO® Scores are calculated from the information in consumer credit files. Whether a mortgage affects the borrower’s FICO® Scores depends on how mortgages are reported to the CRAs, as well as on the person’s overall credit profile. If data in the credit profile indicates that the consumer has a mortgage, that debt and its payment history could be calculated into his or her FICO® Scores.

Credit Cards

Should I take advantage of promotional credit card offers?

Generally, opening new accounts can indicate increased credit risk and can hurt your FICO® Scores. Please keep in mind that opening a new account, and to a lesser extent, the resulting credit inquiry may demonstrate higher risk in the short term.

Will closing a credit card account affect a FICO® Score?

Yes, but not in the way you might expect. While closing an account may be a good strategy for responsible financial health management in some cases, it also may have a negative effect on your FICO® Scores.

FICO® Scores take into consideration something called a “credit utilization ratio”. This ratio looks at your total used credit in relation to your total available credit; the higher this ratio is, the more it can negatively affect your FICO® Scores. Closing an old or unused card essentially wipes away some of your available credit and thereby increases your credit utilization ratio.

Does growing credit card debt impact my FICO® Score?

Yes. Amounts owed on credit cards impact FICO® Scores, since the ‘amounts owed’ category makes up 30% of the FICO® Score calculation.

Student Loans

What is the effect of paying student loans while in college versus after graduation?

Once you start paying your student loan, it will be part of your credit information considered by FICO® Scores. Deferred loans do not harm FICO® Scores. The existence of the loan is a factor used to demonstrate the length of credit history and mix of credit.

Keep in mind that missing or late payments have a negative impact on FICO® Scores.

All Credit types

How are FICO® Scores affected by the combination of interest and principal?

Most installment loans are a combination of interest and principal. The inputs into your FICO® Scores are based on data in your credit report, which generally does not break out the interest and principal components, but instead reports the overall debt. Therefore, the fact that loan payments are a combination of interest and principal does not have an impact on a score.

Does moving loans into forbearance affect FICO® Scores?

Forbearance is a period of time during repayment in which a borrower is permitted to temporarily postpone making regular monthly payments. The debt is not forgiven, but regular payments are suspended until a later time. As an example, forbearance may be granted if a borrower is experiencing temporary financial difficulty. The consumer may be making reduced payments, interest-only payments, or no payments. FICO® Scores do not consider the fact that a loan is in forbearance. Therefore, the fact that a loan moved into forbearance would not impact the score. However, even when a loan is in forbearance, other information about the loan may continue to impact the score.

Glossary