Many Lenders use credit bureau scores as a key part of the approval process. Credit scores are a statistical method of predicting a consumer's financial risk over a period of time. Your previous credit behavior is used to determine your credit score which is primarily derived by payment history, outstanding debt, credit account history, recent inquiries and types of credit on your credit bureau record. The two credit reporting agencies in Canada—Equifax and TransUnion—determine your credit score on a scale from 300 to 900 – the higher your score, the better.
The five main factors looked at by lenders are:
Credit history: Do you have a good credit score and positive credit history? Lenders review the times you've borrowed in the past and your payment history on your credit cards, loans and mortgages.
Character: How much care and responsibility have you shown in managing your finances? Do you pay your bills on time? Do you have a steady job?
Capital: What's your net worth? Do you have any savings, real estate, investments or RRSPs?
Capacity: What are your current debts? Do you earn enough income to pay them off and take care of your other financial responsibilities?
Collateral: Do you have assets? These are items the lender can collect if you default on payments such as your home, car and investments.
A few additional tips to keep in mind:
• Once you have your report, you should review it at least once a year to make sure it's accurate.
• It's a good idea to request your credit report two to three months before applying for a mortgage or large loan. This way, if you notice an error on your report, you'll have plenty of time to correct it.
• If you do find an error in your credit report, contact the credit reporting agency immediately.
Source: News Canada
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