How is the credit score determined?

How is the credit score determined?

Credit score determined

The file and the credit score are rather nebulous subjects for a large number of people. However, they are decisive when a credit need arises, especially the mortgage.

Equifax and TransUnion are the major credit reporting agencies in Canada. They are the ones who enter the information they receive from creditors into consumers’ credit files. The credit file includes, in addition to various personal information, data on the use and management of an individual’s credit.

Other information, in particular that which is in the public domain such as bankruptcies, is also entered there. Bankruptcy has an extremely negative impact on the score. It should also be noted that the data in the credit file remains there for a relatively long time, approximately six to seven years ( ACFC, 2012).


The credit score is a number between 300 and 900 (the best score being 900; see the distribution of scores below) which is the result of sophisticated algorithmic calculations and which changes over time, along with the behavior of the person.

Note that it may vary somewhat for the same client, depending on the type of application submitted (credit card, mortgage, etc.). For the creditor, it is an indicator of the risk he takes about the borrower, given his present and past behavior in terms of credit management.

Statistics are taken from Jean Fortin (2018).


What are the factors that determine the credit score and in what proportions?

Payment history (35%)

This is the most important element of the credit score. A late payment, regardless of the amount, has a very negative impact on it. Not making payments on time represents a great risk for the lender. About credit cards, it is therefore essential to pay the minimum payment required each month.

The balance over the available limit (30%)

The ratio between the balance due and the authorized limit is also a determining factor of the score. Abundant use of credit is interpreted as dependence on it, which is frowned upon by lenders. This is the case even if the payments are made on time since there remains a risk of excessive indebtedness which could lead to an inability to meet its obligations.

A ratio that does not exceed 35% is considered ideal, but it remains acceptable up to 50% Jean Fortin (2018). Thus, it may be wise to gradually accept offers to increase the agreed limit when greater future needs are anticipated.

Credit history (15%)

This element is also taken into consideration since the amount of data accumulated over the years allows the lender to make an informed decision regarding a client by properly assessing the risk he represents. Since past behavior is often an indicator of future behavior, this information is very valuable. A good history tests for stability and reliability over time. For the consumer, it is therefore wise to continue to use older credit cards whenever possible.

  1. Application credit (10%)

The proliferation of credit applications is likely to send the wrong message to the lender. Like excessive use of credit, repeated demands are seen as a dependency on it and a propensity for over-indebtedness. A request should be made only when necessary, to meet a real need. Note, however, that “shopping around” for a loan within a short period, such as two weeks, is considered normal ( TransUnion, 2018).

Credit mix (10%)

Of course, there are different types of credit.

  • Installment credit, for example, a car loan, is repayable in fixed amounts at a certain frequency for a pre-established period.
  • Revolving credit, or a credit card, allows you to borrow flexibly over time up to a certain limit.
  • Open credit, which includes the line of credit, is similar to revolving credit in that it allows borrowing as needed up to an authorized maximum.
  • A mortgage loan borrows funds secured by the value of a property.

Having a good mix of credit types is also a factor that comes into play. Like a strong credit history, it gives the lender a more accurate view of how the customer is managing their overall credit. Of course, you have to be reasonable.

Sound credit management brings flexibility that is often useful in carrying out your projects. It is possible to obtain a copy of your credit report free of charge and with no impact on your score, by contacting Equifax or TransUnion.

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