You have a credit history report that is kept on file by companies called credit reporting agencies. They track how you use credit cards and personal loans, and pay your bills on time.
All of the information is used to create your credit report and credit score. Lenders use the report as the main tool when they decide whether they will lend you money and the interest rate. Some employers and landlords may also use credit reports to get a sense of your reliability.
Since your report is important. If you have a poor credit history, it could be harder for you to get a credit card or get into a car loan. It’s possible that you need to pay more to borrow money. It can even affect your ability to rent housing or get hired for a job.
A credit score is a three digit number calculated by a formula based on the information in your credit report. You get points for actions that demonstrate to lenders that you can use your credit responsibly. You lose points for showing you have difficulty managing your credit.
In Canada, credit scores range from 300 to 900 points, the best score is 900 points.
Credit reporting agencies create credit scores under different names, such as Beacon, Empirica and FICO®.
Your score will change over time as your credit report is updated. It is up to the lender to decide on the lowest score you can have and still borrow money from. Lenders also use your score to evaluate your interest rate and credit limit. If you have a higher credit score, you may be able to get a lower interest rate and thus save you money over time.
While they are very important, credit scores are usually not the only thing a lender will look at. Often, they will also consider other factors, such as your income, job or any assets you own.
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