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How Credit Scores Are Calculated

by Yvonne von Jena | January 4, 2016


TransUnion provides a good, simple overview of a credit bureau report and score, including a breakdown of the composition of a person's credit score. It describes a credit report  a credit report as a record of how a person manages his/her money. While lenders use these reports to decide whether or not to extend credit, “it leaves a lot of room for interpretation”. TransUnion distills the data from a person's credit bureau report to calculate his/her credit score. It says that the score is made up of the following:

  • 35% is payment history
  • 30% is the amount owed to lenders
  • 15% is the length of credit history
  • 10% is the types of credit accounts the person maintains
  • 10% is new credit accounts
All of these values are then broken down into a credit score by TransUnion, which ranges between 300 and 850. The higher the number, the better. A person’s payment history is the most important aspect of his/her credit score, because TransUnion says “it shows how you’ve managed your finances, including any late payments”. Credit history is also very important, as “it demonstrates how long you've been managing your accounts, when your last payments were made, and any recent charges”. The credit mix refers to the different types of credit that a person has, such as credit cards and mortgages. In addition to the credit mix, the number of accounts that a person has will also influence his/her score. Things that the credit bureau reports and scores do not include are things such as ethnicity, religion and marital status. Your age, employer, salary and occupation are likewise not included in the equation. Two major credit bureaus, TransUnion and Equifax, are responsible for collecting and maintaining consumer credit reports in Canada. These reports are then provided to subscribers, such as landlords, mortgage lenders, credit card companies and others who use this information in deciding whether or not to extend credit to the end borrowers. Some subscribers work with both credit reporting agencies but some only work with one. As a result, the information included in one report from one of the credit bureau agencies might be slightly different from a report from the other one.


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