By Leah Ryder
Your credit score is an important benchmark that many businesses use to assess your credit risk. It’s important to know how it’s calculated, and how your credit behaviour can shape your score.
In Canada, there are two main credit bureaus that calculate and provide credit scores and reports for consumers and businesses: TransUnion Canada (TU Canada) and Equifax Canada. Canadian banks and lenders can also use their own internal scoring models to calculate your score.
What’s a TransUnion credit score?
In Canada, Credit Karma uses a proprietary credit-scoring model developed by TransUnion.
Each time you engage with credit via businesses such as auto dealers, banks, credit unions, mortgage companies, utility companies, student loan providers, that information forms part of a very important document - your credit report.
Your TransUnion credit report provides a wide range of information and data. Some of it goes into your credit score, and some of it doesn’t. In fact, knowing what does and doesn’t factor into your credit score is an important step toward truly understanding your financial status.
What’s used to calculate your TransUnion credit score
TransUnion calculates your credit score based on a number of factors in your credit history.
This information can positively affect your credit score when you’re consistent and reliable at repaying your credit card balances and other loans.
Payment history is the most important aspect of your score, according to both TransUnion Canada and the Financial Consumer Agency of Canada (FCAC). Records of when you’ve paid your bills (on time, late or missed) show how long you’ve been responsible with credit and how you’ve been managing that credit over time.
Credit utilization (CU) is the second most important factor. Your utilization is the percentage of your available credit you’re using.
The FCAC advises that you try to use less than 35 percent of your available credit to help lenders view you as a responsible borrower.
You can determine your rate by first adding up the limits of all your open credit products (credit cards, lines of credit, loans) to determine your total available credit. To maintain an ideal CU rate if your total credit limit is $20,000, for example, you would not want to borrow more than $7,000 (35 percent of $20,000) at any one time.
Length of credit history (how long your accounts have been active) is also an important factor very important for TransUnion. It shows how long you’ve been responsible with credit and how well (or poorly) you’ve handled that responsibility over time.
Credit mix (the different types of credit you use) as well as how recently and how often you apply for new credit are also factored into your TransUnion credit score.
Types of credit that are typically considered include credit card accounts, personal loans, mortgages and auto loans. The number of accounts you have may also affect your score.
There’s no magic number for the perfect mix, but your score might be lower if you have just one type of credit, according to the FCAC.
They note it may be better for your credit health to have a selection of different types of credit - even if it’s a second, but different, type of credit card. However, you shouldn’t apply for a new line of credit unless you really need it and can responsibly manage it.
What ISN'T used to calculate your TransUnion credit score
Personal details (TransUnion categorizes them as “identifying information”) aren’t used to calculate your credit score. Identifying information that isn’t used to calculate your credit score can include information such as:
- Your age
- Marital status
You should also know that soft inquiries on your credit report don’t affect your score. These soft hits may occur when you request your own credit report (say, with Credit Karma) or when businesses with whom you have an existing account, like your bank, check on your report.
Information such as your total assets and your salary don’t appear on your credit report and aren’t considered when calculating your score.
Negative marks included in your TransUnion credit report
Negative credit details, also known as derogatory marks, are instances of poor credit behaviour that might serve as examples of not managing credit responsibly. Derogatory marks stay on your TU Canada credit report for varying lengths of time and can include:
- Delinquencies on credit accounts or trade lines (from the date of your first failure to pay on time). A delinquency is defined as a failure to pay an outstanding debt, so this might include a missed payment on your credit card or loan.
- Accounts in collections (from the date when the account sent to collections became delinquent with the original lender).
- Legal judgments made against you (from the date the judgment was filed).
- Bankruptcy, or multiple bankruptcies (from the date of discharge, which is when you are released from your legal obligation to repay the debt). If your bankruptcy isn’t discharged, it may stay on your TransUnion credit report indefinitely.
- Hard inquiries into your credit (recorded when lenders and banks access your credit report for lending applications).
The exact timeframe that your TransUnion Canada credit report will display negative data depends on a few different factors, including the type of derogatory mark, how old the negative record is and your registered province of residence.
Pro Tip: Your place of residence is determined by the current address the bureau has on file. If you’ve recently moved to another province, check your credit report to ensure the address is up to date.
As a rule of thumb, you can expect negative information to remain on your TransUnion Canada credit report anywhere from six to seven years, with the exception of multiple bankruptcies - they’ll remain on your report for 14 years.
More about TransUnion Canada
Both TransUnion Canada and Equifax Canada provide benchmark information about the credit habits and histories of millions of Canadians, and offer services to both consumers and businesses to help them manage lending and credit decisions.
Beyond the Great White North, TransUnion operates in 33 countries worldwide and trades on the New York Stock Exchange under the ticker symbol “TRU” (NYSE:TRU).
If you ever want to reach TransUnion directly, the FCAC provides updated contact information for TransUnion on their website.
See your TransUnion credit score
To get a copy of your TransUnion Canada credit report and score, sign up for a Credit Karma account. With Credit Karma, your reports and scores from TransUnion Canada are always free.