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What Is A Credit Score
What is a CREDIT SCORE? A numerical expression based on the statistical analysis of an individual’s credit files to represent the credit worthiness of that individual is called as credit score or in other words a snapshot of ones credit history. Primarily credit score is based on the credit report information that can be sourced from credit bureaus.
Generally lenders like banks, credit card companies etc. make extensive use of credit score to calculate the potential risk that a customer would be carrying upon being lent money by the lender. Lenders also use credit scores to determine the interest rate at which the customer deserves the loan and to determine credit limits.
Credit score initially was limited to banks alone. But these days many organisations like insurance companies, mobile phone operators and many other government departments too employ these techniques.
Equifax Canada and TransUnion Canada are the two reporting agencies for credit score calculation in CANADA. These two agencies also have operations in the United States thus making credit score system quite similar to the ones in the United States. There however exist some key differences, like in the United States the consumer is allowed to grab a free copy of his/her credit report only once a year, whereas in Canada the consumer can ask for a free copy of his/her credit report any number of times.
The number of ways to work out credit scores is plenty. In Canada the two credit reporting agencies use a range of 300 – 900 to calculate credit scores. High scores lower the risk that the lender perceives you to be possessing.
The most common ratings to evaluate credit scores in Canada are “R” ratings which were put forward by the North American Standard Account Ratings. “R” stands for ‘revolving’, used to indicate that the item being purchased involves revolving credit. The “R” ratings coding system translates terms like one month late, two months late, on time etc. into two – digit codes.
• R1 stands for the loan payment being paid within 30 days of the due date • R2 stands for the payment being paid more than 30 days of the due date but not more than 60 days. • R3 stands for the payment being paid more than 60 days of the due date but not more than 90 days. • R4 stands for the payment being paid more than 90 days of the due date but not more than 120 days. • R5 indicates that the payment is due by at least 120 days. • R7 indicates that the customer is regularly clearing off his payments but through special arrangements. • R8 indicates that the merchandise purchased has been either voluntarily or involuntarily been returned. • R9 cumulatively stands for “BAD DEBT”.
Other indicators that may be used are “O” that stands for Open Credit Line and “I” that stands for Instalment credit.
Generally lenders like banks, credit card companies etc. make extensive use of credit score to calculate the potential risk that a customer would be carrying upon being lent money by the lender. Lenders also use credit scores to determine the interest rate at which the customer deserves the loan and to determine credit limits.
Credit score initially was limited to banks alone. But these days many organisations like insurance companies, mobile phone operators and many other government departments too employ these techniques.
Equifax Canada and TransUnion Canada are the two reporting agencies for credit score calculation in CANADA. These two agencies also have operations in the United States thus making credit score system quite similar to the ones in the United States. There however exist some key differences, like in the United States the consumer is allowed to grab a free copy of his/her credit report only once a year, whereas in Canada the consumer can ask for a free copy of his/her credit report any number of times.
The number of ways to work out credit scores is plenty. In Canada the two credit reporting agencies use a range of 300 – 900 to calculate credit scores. High scores lower the risk that the lender perceives you to be possessing.
The most common ratings to evaluate credit scores in Canada are “R” ratings which were put forward by the North American Standard Account Ratings. “R” stands for ‘revolving’, used to indicate that the item being purchased involves revolving credit. The “R” ratings coding system translates terms like one month late, two months late, on time etc. into two – digit codes.
• R1 stands for the loan payment being paid within 30 days of the due date • R2 stands for the payment being paid more than 30 days of the due date but not more than 60 days. • R3 stands for the payment being paid more than 60 days of the due date but not more than 90 days. • R4 stands for the payment being paid more than 90 days of the due date but not more than 120 days. • R5 indicates that the payment is due by at least 120 days. • R7 indicates that the customer is regularly clearing off his payments but through special arrangements. • R8 indicates that the merchandise purchased has been either voluntarily or involuntarily been returned. • R9 cumulatively stands for “BAD DEBT”.
Other indicators that may be used are “O” that stands for Open Credit Line and “I” that stands for Instalment credit.
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