A credit score isn’t a credit rating

It’s important to know the difference.

Your credit rating and your credit score aren’t the same thing. They’re similar, but there are some key differences to be aware of.

Your credit rating’s like your biography, but it only tells the story of your borrowing history. Your credit score, on the other hand, is a 3-digit number between 300 and 900 that represents your financial history.

The higher your score, the better. A score above 720 puts you into a prime lending category while a score below 600 could lead to you being turned down for loans.

TransUnion and Equifax are two companies that provide credit scores in Canada. They have their own equations to determine your score, so keep in mind that your score with each may be different. Regardless, this breakdown gives an idea of what they consider:

  • 35% is based on your payment history.
  • 30% is based on your capacity. This is the amount of unused credit you have available.
  • 15% is based on the length of your credit history.
  • 10% is based on new credit. Opening new credit cards has a negative short-term effect on your credit score, so don’t open a bunch of them all at once.
  • 10% is based on your mix of credit. A variety of types of credit boosts this part of your score. You want to have revolving credit, but you also want instalment loans like a mortgage or car loan.

The credit scoring system was developed in the 1980s and, at first, it was mostly used in loaning money. Today, credit scores are used for all kinds of things, like when you rent an apartment or even when you’re being considered for employment.

Credit scores introduced a standardized way to measure creditworthiness. Before that, loan approval was based on an individual lender’s judgement, and it could be a time-consuming, inconsistent and biased process.

Credit scores can say a lot about a borrower, but they don’t tell the whole story. At Affinity, we take the relationships we have with our members seriously, so that’s also part of the picture when we consider a loan application.

Life happens, and a bad credit score can be the result. So it’s important to take your payments seriously and understand what can happen if you don’t. For example, if you’re moving out of a rental property and skip out on your last bill, it’s likely that it will get sent to collection. That’s going to have a negative impact on your credit score which will affect your ability to borrow.

If you’re working to get your financial life back on track and you have a good history with us, we’ll balance that against a negative credit score.