You’re credit score is somewhat of a magical number. There are many general factors that go into calculating your credit score, but different reporting agencies calculate it in different ways, and none of them will tell you exactly how the score is calculated, and the effect different actions have on your score. The best way to understand your credit score is to monitor it with a free tool, such as the Borrowell Credit Report, and see how different actions change your score over time.
Why to monitor your credit score
Essentially, your credit score is a number that financial institutions use to assess your ability to pay back loans or credit that you may be applying for. Your credit score is built over time, and through a myriad of different methods. The main instances where your credit score may come into play are:
- Signing up for a new credit card
- Looking to get a loan
- Applying for a mortgage
Keeping an eye on your credit score over time can help you gauge your ability to be approved for financial products.
Getting a free credit report with Borrowell
The tool I use to monitor my credit is Borrowell, a free Canadian credit report that uses the Equifax Risk Score 2.0 to calculate your credit score. We’ll take a look at the information that the free Borrowell credit report provides, and what items might affect your credit score.
This will tell you personal information about yourself such as your name and birthdate, as when your credit bureau file was first created, and the last time your report was generated. It’s a good idea to make sure that this information aligns with you, and that your credit report hasn’t been mixed up with someone else.
Your Borrowell credit report will list all of the credit related accounts that it has associated with you. This refer to any open or closed accounts that appear on your credit report such as credit cards, instalment loans, mortgages and mobile phone accounts. It is broken down even further into the following categories:
These are your credit accounts that generally have a set credit limit, and you can borrow up to that amount. This includes credit card and lines of credit. On my report it includes three credit cards (two that I use, one that I don’t but is still active) and provides the following information:
These are financial accounts that you have that have scheduled payments over a set period of time. This includes things like car loans and student loans. In my credit report it includes a car loan I have through Scotiabank.
Open accounts are accounts that you have that are on-going but not necessarily on a set payment plan. Things mostly shows up as your mobile phone. In my report my cell phone company shows up in this section.
This section is pretty self explanatory, any mortgage or loan you might have to purchase a home or real estate. Interestingly enough, the mortgage I have is not reported under this section, which means that if I want to have it taken into account on my credit score, I would need to report it to Equifax.
When a financial company does a “hard inquiry” check of your credit, it is reported on your credit report. “Hard inquiries” occur when a potential lender is reviewing your credit because you’ve applied for credit with them, and may affect your credit score. “Soft inquiries” occur when you’re checking your own credit file and/or score (such as checking your score with Borrowell), credit checks made by businesses to offer you a quote, or inquiries made by businesses where you already have an account. It’s important to note that “soft inquiries” do not affect your credit score.
These inquires are broken down into local applications made in Canada, and inquires made by a company in a foreign country.
The examples that show up on my credit report in this section are a credit check by my mortgage broker that I had done last year as part of purchasing a new home, as well as a credit check from Alterna Bank when I opened a new account with them in 2017.
Your credit report will also show you any accounts that have been sent to collections, whether the balance(s) have been paid or unpaid. Be careful – when an account gets sent to collections it can have a big impact on your credit score.
Luckily on my credit report, I have no accounts that have been sent to collections.
This section may include any public records that would show up on your credit report. This may include items such as a court judgment.
Again, I luckily have no examples that show up on my credit report.
If you have ever filed for bankruptcy or consumer proposal it would appear here.
Again, no examples for me.
How Reviewing Your Borrowell Credit Report is Helpful
By reviewing my credit score through Borrowell every month, I’m able to see how my financial choices affect my credit score. For example, here is a graph of my credit score over the past year.
As you can see, there have been a few major things that have affected my score. The initial inquiry by my mortgage broker in July started to lower my credit score, as expected. The purchase of my new home went through in October, so you can see how much that whole process affected my credit over those few months.
And since then, being back to my regular habits of paying off all my bills and not doing any hard inquiries, you can see how the score starts to build back up.