What’s an actual bad credit score, really?
Your credit score is important. It’s a reflection of your financial health at a specific time, and it’s also a crucial piece of information for any potential lender, with the score representing the risk you represent for them.
Your credit score can determine a number of things, like whether or not you can start a line of credit with your bank, or get a mortgage for a new home. Some potential employers may even request to check your credit. It’s one of the factors that control potentially big life changes, which is why a good credit score is so important.
So just how bad of a credit score is a bad credit score?
Credit scores in Canada range from 300 to 900 points. The higher the score, the better your credit score is. Anything above 650 is considered to be a good credit score and will most likely allow you to secure a loan.
A credit report is slightly different from a credit score. Reports are managed by credit reporting agencies and are updated on a daily basis, meaning they change regularly.
Your credit score is determined by different credit information, such as bounced cheques, any accounts that may have been sent to collections, judgments (debts owed due to lawsuits), consumer proposals (which are legal agreements set up by an insolvency trustee between you and your creditor where the latter agrees to let you pay off a percentage of your debt), and bankruptcy.
How long is information kept on my credit file?
This negative information is kept on your credit report for different amounts of time. Judgments generally stay on your credit report for six years. Consumer proposals are generally kept on file for three years after the debts have been paid off. Bankruptcy is generally removed from your credit report six years after the date you are discharged. However, if bankruptcy is declared more than once, this information will appear on your credit report for 14 years. Other things that can lower your credit score include “maxing out” credit accounts or missed or late payments. Read also How often do my credit score and credit report get updated?
Where can I get my credit score?
Potential lenders will use specific calculations to establish your credit score, based on information in your credit report. Canadian credit reporting agencies Equifax and TransUnion will assess your credit and generate a credit report for free once per year, free of charge, when requested via mail, fax, telephone, or in person. You may also pay to see your credit score. Read also How do I check my credit report for free? and How to read your credit report
What’s the minimum credit score need for a loan?
Depending on the type of loan you need, different establishments will use different credit scoring models (which may have different credit score ranges) or even provide offers for those who have a poor suboptimal score. For such things as credit cards and car loans, the range can be as large as 250-900 points. As for lines of credit, most financial institutions require a minimum of 600.
Most lenders look for 660 points or above for mortgages, according to Theresa Williams-Barrett, Vice President of Consumer Lending and Loan Administration for Affinity Federal Credit Union. Mortgage lenders also generally set minimum credit scores, and not many exceptions are made.
If your credit score is below 650 points, getting a loan approved can be a bit of a hurdle. Thankfully, not every establishment requires such stringent regiments when it comes to providing loans.
urLoan approvals are based on employment and verifiable income, unlike any other traditional means of credit score used by such institutions as banks, or taking security on your assets.