What is a credit score?

Chances are, you’ve heard the term ‘credit score’ before. But what goes into determining our credit score? What are some of the factors that can impact our rating? What is a good score? We’ve got the answers to all those questions and more.

But first, if you need a little refresher on what credit is to begin with, and how to build it, head over here.

What is a credit score?

Simply put, a credit score is a three-digit numeric representation of the information that’s contained on your credit report.

“Your credit score tells us how well you manage your credit,” says Margaret Enman, financial expert from Provincial Credit Union. “In other words, it tells us how well you’ve paid your bills.”

What is a credit report?

A credit report is a document that contains a record of your financial history. It includes information like your name, address, and date of birth, but it also includes a full picture of your finances. And that includes things like:

• What type of accounts you have and which financial institution you have them with
• Credit cards: How many, their limits, your balance, your payment history, how long you’ve had them
• Loans: Including student loans, car loans, and even mortgages, as well as how much they started at, how much you still owe, and your payment history
• Lines of credit: How much you have available, how much you’ve used, and your payment history
• Repayment information for things like your cellphone, internet, car or auto insurance, or other monthly payment you may have. Have you missed a payment? Do you tend to pay all your bills on time?

Your credit report also contains a record of any accounts that may not be in good standing. This includes everything from that student loan you decided not to pay back to that credit card you got in first year of university and missed a few payments on.

“Good ratings will stay on your credit score indefinitely,” explains Margaret. “Bad ratings fall off after seven years. However, if you’ve ever had a judgement on your money or dealt with collections, that can stay on your credit report for an initial 10 years and be renewed for another 10 years.”

Why is your credit score important?

Your credit score basically paints a picture of how well you handle your money—think of it like your financial receipts. It demonstrates your ability to pay debt in a timely way, it shows whether or not you take your financial commitments seriously, and it shows what your overall financial situation is like, which can be helpful when you’re looking to get a mortgage, buy a new car, open a line of credit, or even apply for a job.

“We use a credit report to help decide whether or not we’re able lend someone money,” says Margaret. “It helps us determine how well you’ve managed credit in the past and helps us predict how well you’ll manage it in the future. It can also be helpful in negotiating rates. If you have a good credit history, there’s less risk involved in lending you money, so we might be more likely to give you a better rate.”

What’s considered a ‘good’ or ‘bad’ credit score?

Scores can range anywhere from a low of 300 to a high of 900 and all points in between.

“I’ve never seen somebody with a score of 300, and likewise, I’ve never seen somebody with a score of 900,” says Margaret. “Typically, we see scores in the 400–850 range. Anything in the 800s is considered excellent, 700s is very good, high 600s is still ok, but anything less than 600 is really not considered ‘good’.”

Who can access my credit score?

There are lots of times when it might be necessary to run a credit check, but it’s something you must provide permission to do. It’s becoming more common for employers to run a credit check on potential employees. Landlords may request a credit check before they’ll lease you an apartment. Your cell phone provider may require one before you can get a phone plan. Buying a new car? If you plan on financing it, the dealership will need to run a credit check. Applying for a new credit card? Expect a credit check. Opening a bank account? Credit check. Essentially, any time you plan on taking on new debt or accessing credit, you can expect a credit check to be part of the process.

That being said, always read the fine print. You may think you’re only doing an initial inquiry, but the fine print may say otherwise. It’s always good to be very aware of how often your credit is being checked—believe it or not, multiple inquiries can negatively impact your credit score.

What happens if I end up with a ‘bad’ credit score?

It’s inevitable that we all make mistakes. The good news? Your credit score can change monthly. If you somehow manage to miss a monthly payment, it’s not the end of the world—if you act quickly to fix what happened. The longer you let things go, the worse it will impact your financial outlook. If you end up with a score that’s lower than you would like, review your financial habits and your credit health and see where you can make some changes.

How can I check my credit score?

Credit unions use trusted agencies Equifax and TransUnion for credit reporting. If you're a credit union member, there are a few ways you can check your credit report:

1. Visit Equifax or TransUnion's websites to request a copy.
2. If there is an Equifax office in your town, you can visit their location and they will provide a copy.
3. Next time you are applying for credit, ask your lender to review your credit report with you.

And remember—you don’t have to do it alone. Your local credit union can help.