The credit score is a tool used to assess a person's creditworthiness. It is used by lenders to determine if a person is a good candidate for a loan or a credit card. Immigrants to Canada may have difficulty understanding how their credit score is calculated, as it may be different from what they experience in their home country.
There are several credit rating companies in Canada, but the most popular are Equifax and TransUnion. These companies use algorithms to calculate credit score using information such as:
- Credit History: Previous loans, credit cards, revolving credit accounts, and bill payments are taken into account to assess a person's ability to repay debts.
- Credit usage: The percentage of the credit limit used by a person is also taken into account. High credit limit usage may indicate excessive debt usage.
- Length of credit history: A longer credit history can be considered more favorable for obtaining a high score.
- On-Time Payments: On-time payments are very important to maintaining a good credit score. Late payments or payment defaults can cause a decrease in credit score.
It is important for immigrants to Canada to understand how their credit score is calculated so they can take steps to improve their credit score. Immigrants can get a copy of their credit report from Equifax or TransUnion and check for any errors or inconsistencies. They can also implement strategies to improve their credit history, such as on-time payments, debt management, and limiting credit limit usage. It's also important to learn about common credit scams and how to avoid them.