A credit report is a history of how consistently you pay your financial obligations. It is created when you first borrow money or apply for credit and is built over time.
It’s easy to track your credit score these days – perhaps through a paid subscription to Equifax Canada or TransUnion Canada, or through free offerings from your bank or other entities such as Credit Karma or Borrowell.
But there is no consistency among these various sources. In fact, there can be dramatic differences. Therefore, you should focus more on your overall ‘credit hygiene’ rather than any one particular score. Meaning, focus on best practices at all times.
CBC News ran a solid investigative piece last fall, called: “Why 4 websites gives you 4 different credit scores and none is the number most lenders actually see.” One Canadian encountered a 200-point difference between his highest and lowest scores from several score providers.
It’s important to remember that the credit score you see, might not be the one the bank sees. Lenders can and do, order credit reports that are designed to meet their specific needs.
How useful are Free Credit Scores when applying for a mortgage?
To bring the conversation around to mortgage borrowing, the only credit score that matters is the one your lender sees when your application is submitted. And it’s almost certainly NOT a score you have seen for yourself from all the score providers out there. These days prospective mortgage clients are often excited to tell their broker what their credit score is. While it is commendable to care and monitor your credit, the Credit Karma / Borrowell credit scores are not sufficient for the mortgage lenders. Your mortgage broker actually requires you to sign a consent form to access a comprehensive credit report.
FICO score 8 is the Gold Standard
For the most part mortgage brokers submit their mortgage applications with an Equifax Canada credit report attached. This report will display a few different measures to the lender, but the one the lender pays the most attention to is called FICO Score 8.
FICO says 90% of Canadian lenders use it, including major banks, but Canadian consumers cannot access their FICO score on their own. Some banks and other mortgage lenders rely solely on the TransUnion credit report, which may use the Credit Vision Risk Score, and others use both reporting agencies. But they can all generate a FICO score
Why you should worry about your Credit Hygiene, not your Credit Score.
It is great that Canadians care about their credit history – it is essential to many aspects of life, not just for major events like financing a home or an automobile. For example, some employers check candidates’ credit history, and so do most landlords when considering tenancies.
We are not here extolling the need for standardized credit score reporting. Because that is not going to happen anytime soon, as desirable as it may seem. Instead, we will talk about best practices of maintaining great credit hygiene. In part 2, we will look at various ways you can proactively manage your personal credit history and keep your score, whatever score that may be, optimized at all time.
Original article: www.canadianmortgagetrends.com
