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How Do I Check My Credit Score?

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If you’re thinking about buying a new car, you’re probably also looking into applying for a car loan in Toronto as well. If you’ve even lightly looked into the process of this, you’ve probably seen the words “credit score” being tossed around everywhere you look.

If it’s your first time doing this, the application process might feel a little complicated and overwhelming. But it doesn’t have to be that way! To help you get a bit of a head start, we’ve put together a comprehensive guide to talk about what credit scores are and how to check them.

Before jumping head first and applying for any car loan in Toronto, it’s important to understand all the moving parts around this process to help guarantee your chances of approval. The best place to start is by understanding credit scores. What is it? Why is it important? What qualifies as a good or bad credit score? How do I check it?

We’ll answer all these questions and more. Let’s begin!

People walking through subway station with credit scores for car loans

What Does My Credit Score Say About Me?

Credit scores ranks a person’s borrowing habits and puts them into a quantifiable number that’s conjured up by an algorithm used by credit bureaus.

In Canada, credit scores fall between a range of 300-900 points — the higher it is, the better your credit score. 650 is the magical benchmark number that everyone should be striving to hit as it will qualify you for most standard loans.

Lenders use credit scores to help determine what find of borrower you are. Do you have a lot of credit accounts open? Do you pay your bills on time? Have you ever filed for bankruptcy in the past? All this activity will reflect in your credit score and ultimately determine the likelihood of you getting approved for loans (and other things!) and what sort of interest rates you’ll be offered.

How Is Your Credit Score Determined?

While there are a couple scoring models, for the purposes of this piece we’ll be talking about the FICO model as it’s the most commonly used worldwide. When calculating your credit score, here’s how it all breaks down:

Payment history (35%) – Just like it implies, 35% of your credit score is based on your ability to pay back lenders and creditors. This also takes into account whether or not payments have been made on time. To help land a higher credit score, it’s crucial to exercise healthy financial habits and ensure that you’re making all your monthly payments before the deadline.

Credit Usage (30%) – Notice how you always have a maximum spend on your credit card? While it might be tempting to reach it’s full cap to acquire the points or rewards associated with that credit card program, when it comes to your credit score, it’s recommended that you don’t pass 35% of your available credit. Over a quarter of your credit score is based on the amount of debt you acquire compared to the amount of credit you have. If you consistently hit your credit card’s max every month, it will reflect negatively as it may imply to bureaus that you have a hard time managing your finances.

Credit Length (15%) – Credit bureaus like to see that you’ve establishing strong, long-term relationships with creditors. If you pay them back on time, the stronger your relationship with that creditor will be and that will only reflect positively in your score. If you ever catch yourself in a sticky situation and need to cancel any credit cards, it’s recommended to always cancel newer accounts first opposed to older ones.

New Inquiries (10%) – Whenever you apply for loans, the lender will pull out your credit history to determine whether or not you’re a high risk or low risk candidate. If you start applying to multiple lenders all at once and they all start pulling your credit history — your credit score will quickly start to plummet. If you try to open multiple lines of credit, lenders will be able to see that and assume you’re a high risk candidate because of how difficult it is for you to get approved. To avoid this, it’s important to keep all new inquiries down to a minimal and only apply for loans with lenders that you know you have high chances of getting an approval with.

Account Diversity (10%) – Credit bureaus like to see that you can manage debt responsibly. How’s the best way to show that? By having a diverse range of debt products under your name, that you’ve been able to take care of and pay off responsibly. Account diversity includes anything from credit card accounts and any sort of installment loans like car or student loans.

Why Is Having Good Credit Score Important?

Having a good credit score is important because it gives you insight as to how responsible you are as a borrower. Checking it can give you (and others!) an idea of some of your financial habits and help you see if there’s any room for improvement.

Here are some quick tips and habits to practice to help achieve a good credit score:

  • Timely Payments – This is the golden rule. If you borrow money, be sure to pay it back in a timely manner. If you do this consistently, you can be confident that your credit score will stay in relatively good shape.
  • Check Your Score Regularly – The best way to know you’re on track is checking if you are! People make the mistake of assuming they’re in good shape until they check last minute and realize their score is not as good as it could be. By checking in regularly, the quicker you can be at taking action to improve it, if necessary. It’s also helpful to monitor any irregularities on your account. If you see anything that shouldn’t be there, the sooner you can address it before it negatively impacts your score.
  • Build Your Credit History – No credit is just as bad as having bad credit. You need to have a credit history in order to get your credit score and if there’s not enough information under your account, the lower your number will be. This is an issue most commonly found amongst young people and new immigrants. Luckily, the solution is easy. If you’re someone who has no credit history, start by getting a credit card and start building from there. Pay back everything you owe on time, and after a couple months you’ll start to see your score increase.

The quality of your credit score can determine your chances of getting approved for things like car loans or housing. This is where having a good credit score becomes very important. Low credit scores can actually hinder your chances at getting what you want and depending on what it is, can cause unwanted stress. What might those situations include?

Rental Housing
For anyone who follows the rental market, you would know just how competitive it can be to find a decent unit in the city. When prospective renters find a place they like, they typically have to go through an application process with the landlord which usually involves doing a credit check. If potential landlords see that your credit score is too low, they might be inclined to reject your application, especially if you’re up against other potential tenants that have higher scores than you.

Securing a Job
Many people don’t think it’s possible, but having a low credit score can affect your chances of landing certain jobs. This is mostly done within the financial sector or for positions where potential employees would be expected to handle the finances of that particular company. The reason behind this practice makes sense as employers want to see that you’re able to handle your own personal finances before handling the finances of other people or businesses.

It must be noted that it’s actually illegal for employers to get your credit score, but they are allowed to access your credit history which includes everything from open credit accounts, debt, any instances of bankruptcy and much more. This alone will give them a good idea of what your score might be. If they see any red flags, they might be inclined to pass the job to someone else.

Getting a Mortgage

Those looking to buy a home will often apply for a mortgage in order to afford one. Credit scores can greatly impact whether or not you get approved by certain lenders or get offered good interest rates. Traditional lenders like banks typically have harder application requirements that need to be met, while credit unions and other alternative lenders are more flexible which is helpful to those who have lower scores.

Getting A Car Loan

Whether you’re purchasing a used or new car, chances are you’re probably going to apply for a car loan. Just like applying for a mortgage, depending on which creditor you decide to go with can greatly impact your chances of approval.

Generally speaking, those with a good credit score will get approved for most loans and land an interest rate that works for them. Depending on where they go, those who have a poor credit score might be offered higher interest rates or in a worst case scenario, get their application rejected entirely.

Whether you have good, fair or bad credit — the secret to getting approved is all about knowing which creditor is best for you. For example, banks and credit unions are typically people’s go-to option for applying for any loan. Going with them is incredibly convenient, especially if you already have an account with that financial institution. However, both banks and credit unions are known to have the stricter application requirements, which typically include a good credit score and certain income requirements.

If you suffer from bad credit, your best bet is to go with an alternative lender like Auto Loan Solutions. No matter how dire your situation maybe, they will work with you to provide the car loan that works for you. They leverage their relationships with Canada’s top financial institutions and lenders to negotiate car loans in Toronto that work within your means.

Gentleman looking up his credit score online before applying for a car loan in Toronto.

How Do I Check My Credit Score?

Checking your credit score is quick and easy! Your credit score can be viewed online with Equifax Canada or TransUnion Canada for a small fee.

There are numerous other third party websites that offer to show your credit score for free, but make sure you do your due diligence and look into them first before submitting any personal information. Be sure to look into the terms and conditions on the site to find out what they do with the personal information you submit. Some companies will send that information to third party companies and if that’s something you’re not comfortable with, you may want to opt for another service.

If you want to look at your credit report, this can also be done for free through Equifax Canada or TransUnion Canada. While this isn’t your credit score, credit reports outlines your history with debt, other bills you’ve paid, and highlights your financial reliability. Having this information it can give you a slight idea of what your credit score might be.

To receive this information for free, all you have to do is provide two valid pieces of government issued I.D. and fill out all the necessary information asked in their application. Once it’s all been submitted, your credit report will come in by mail. If you’re under a time crunch and need to see your credit report right away, both Equifax Canada and TransUnion Canada can pull that information online for a fee. It’s important to note that checking your credit history will not affect your credit score.

It’s good practice to check your credit score once in a while, especially before making big purchases. Having an idea of where it falls can help you negotiate better interest rates when applying for loans, especially if you have a high score. If your score falls lower than expected, you might decide to rebuild your credit score first before deciding to make any big buys.

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