Credit in a New Country:
A Guide to Credit in Canada
When you go into many retail stores in Canada, you may be offered an opportunity to apply for a credit card "instantly." How is it that companies can offer credit on the spot? It’s because they use credit scores that predict how likely someone is to pay their bills in the future.
Most credit scores are created by a company called Fair Isaac, which creates what are called "FICO" credit scores. To create a credit score, information in credit reports, account histories, or credit applications are evaluated to find out what consumers who pay their bills on time have in common and then they are assigned a number, and that is their credit score.
According to Fair Isaac, the factors that make up your credit score fall into five main categories:
| Payment History | 35% |
| Amounts You Owe | 30% |
| Length of Credit History | 15% |
| New Credit | 10% |
| Type of Credit In Use | 10% |
The most important factors in a score are your payment history and the amounts you owe. If you have few or no credit accounts that have been reported to the credit reporting agencies then you may have no credit score, or your score may be low due to little credit experience.
Credit scores usually fall between 350 and 850. A score below 650 is usually considered quite low (risky) and therefore it will be difficult to get credit at the most favorable terms. A score of 650 – 680 is still risky but credit is generally available at less favorable terms. A score of 680 – 720 is better, while a score of 720 and above is usually considered very good. Keep in mind that every creditor has its own policies, and each one may look at the same score differently.
Also, keep in mind that your credit score can be different, depending on which of the major credit bureaus supplied the information used to create it, what kind of loan is being considered, and what formula each lender uses.
Note: Even though Equifax, Experian and TransUnion operate in countries other than Canada, the foreign credit reporting agencies do not necessarily share files with Canada. You must establish your own credit history here.
