What Are The Different Credit Scoring Systems?

What Are The Different Credit Scoring Systems?

It’s impossible to get by without your credit score, for a whole variety of reasons. For one thing, every important purchase you’re likely to make throughout the course of your adult financial life is going to require a serious amount of money, and it’s not very likely that you can afford to save up enough to pay for the item up front.

While some of us may well be able to buy a television out of pocket, hardly any of us can do the same with a car, and practically none of us can do the same with an even more expensive item like a house or an apartment. That’s where credit comes in.

What Is A Credit Score?

A screen displaying different scores.

Your credit score is essentially a mathematical representation of how likely you are to pay tanbark the money you’ve borrowed in full and on time. While this might sound a little serious, it isn’t necessarily: consider it just a reliable way to keep track of how good you are at keeping up with your financial commitments.

The better your credit score, the better the interest rates you’ll receive on any kind of loan. This is because the score itself varies rigidly with the history you have of paying back the debt, so there’s less risk incurred by a lender who’s giving you their money to pay for some item or other.

This is all great, but what happens when your score isn’t so hot? You’ll find yourself faced with soaring interest rates the likes of which you never even had to contemplate before, as well as terrible choices when it comes to the terms of the loan and your overall negotiating power for any kind of long-term financial deal. That’s where credit repair in Toronto comes into the picture.

What Is Credit Repair?

A wrench.

Credit repair is a catch-all term for a series of techniques that anybody, no matter what kind of financial situation they find themselves in, can apply in order to repair their credit score and give themselves a leg up out of whichever unfortunate financial waters they find themselves in.

While the name itself sounds quite serious and technical, the actual process of credit repair in Toronto doesn’t have to be so. As a matter of fact, it’s so straightforward that you could start applying the principles today. Even if your score isn’t bad enough to merit credit repair in Toronto, the processes are essentially just good financial habits condensed into a few, easy-to-follow steps, and since we could all make use of learning better financial practice, why not get going with credit repair in Toronto sooner rather than later?

It’s safe to say that anybody could make use of credit repair techniques in Toronto, even if just because they’re basically emblematic of good financial practices. But a crucial aspect of making use of these credit repair strategies is knowing exactly how the differences you’re putting into action are going to affect the score itself. After all, if you don’t know where the goalposts are, how can you be expected to score?

While everybody living in any kind of long-term financial situation is aware of the existence of credit, not many people know that there’s more than one way to calculate your score. Still fewer of that select bunch (some of whom may well be practicing credit repair in Toronto, given that it’s a situation that can happen to even the most-prepared among us) are aware that there are hundreds of different credit scoring models in use today.

How Many Different Scores Are There?

It’s a common misconception that the only score available is the FICO score. This is, without a doubt, the most used scoring model, and because it’s in use by the three major credit bureaus operating in North America (Equifax, TransUnion, and Experian), it can be easy to think that that’s the only score that matters, especially if you’re looking into practicing credit repair in Toronto.

That’s not quite the case, however. Given that there are hundreds of different models, you probably have hundreds of different credit scores, most of which you’re not even aware of. This can sound a little overwhelming, but it needn’t be. It’s just the way the game is played.

It’s impossible to obtain and keep track of all of your credit scores anyway (no matter how diligent you are at practicing credit repair in Toronto) so there’s really no reason to stress about the whole thing. Not all of these scores use the classic 300-850 range—that’s the domain of the FICO score uniquely, and as such doesn’t apply to most other scoring models.

FICO

The FICO score is broken down into a few different categories, each of which are weighted differently when it comes to the overall scoring algorithm. The important thing, if you’re practicing credit repair in Toronto, is to realize which are the most heavily-weighted factors, so you can get working on those as soon as possible and give yourself the best possible chance to get your score moving in the right direction by the time the next credit report arrives in the mail.

The most heavily weighted factors for the FICO score are payment history, debts owed, and age of credit history. We’ll now explain each of these three things briefly so that you can have a better understanding of how exactly they work.

The payment history is the single most important factor in competing for your FICO credit score, and is a record of how reliable you’ve been in the past at repaying your bills on time and in the full amount that’s owed.

Delinquent repayments (such as when you’re not on time, or you don’t pay the full amount) can stay as a black mark on your report for up to seven years, and no matter how good you are at the other aspects of credit repair in Toronto, this alone could undo your entire Toronto credit repair journey.

It’s worth noting, however, that FICO often makes changes to their model in order to make it a more accurate picture of just how reliable individuals are. Practically speaking, this means that there are actually dozens of different FICO credit score models.

One of the ways they divide them up is by using different models for different kinds of debt. So while the credit repair techniques in Toronto you can perform remain the same, in actuality you have a range of different scores, and it’s not always obvious which is which.

Medical Bills

An interesting recent innovation to the FICO score is that the latest version of their general credit score weights unpaid medical bills less heavily than other unpaid debts. They made this change to account for the fact that unpaid medical loans could be unpaid for a number of different reasons, among them the possibility that the person in question may not even be aware that they’ve been billed for a recent hospital stay, as well as the fact that since insurance companies play such a big role in medical expenses, waiting for the insurance to come through can result in unpaid loans, which is obviously not the individual’s fault.

Importantly, however, that the latest FICO model has yet to be adopted by most lenders, so for practical reasons the score which weights medical bills as heavily as other forms of financial obligation is still what you should be keeping in mind as you prepare to fix your score by applying credit repair techniques in Toronto.

VantageScore

While it’s fair to say that FICO is the most popular credit scoring model in operation in Canada today—and as such the one you should be focusing on as you work to repair your credit—they do have a serious competitor in VantageScore. Similarly, VantageScore is continually working on their algorithms in order to get a more precise picture of an individual’s financial health.

Unlike FICO, it was developed by the three major credit bureaus, and while it’s nowhere near as big yet, it’s tracking a general growth rate of 20% per year. Also making use of a scale from 300-850, VantageScore has also started to weigh unpaid medical debt less strongly in their calculations, and medical debt that was incurred in the most recent six months is counted out of the equation entirely. Keeping this in mind, you can adapt the credit repair techniques in Toronto to fit your precise situation, if you know for a fact that the lender in question is making use of VantageScore.

The VantageScore algorithm weighs most heavily the user’s credit history, as with FICO, but also something that they call credit utilization, which is essentially your balance divided by your currently available credit. Only after these two factors do they weight payment history (again, as with FICO, late payments can stay on your record for up to seven years). After these factors, they add in variables like your total debt balances, your recent behaviour, and how much credit you have available. This last figure is weighted least heavily of all, and as such isn’t something you should be focusing on as you work to boost your score by applying credit repair techniques in Toronto.

Know Where You Stand

A hand on a table with notes.

Whether the score your lender uses to calculate your loan is FICO, VantageScore, or—most commonly—a combination of one of the two with their own internal algorithm, you have to know how you can go about finding out what your score is in the first place. While it’s true that the credit system has a long distance left to travel before it can be considered a fully transparent service, there have been great strides made in recent history that put today’s consumers in the best position they’ve ever been in to get to know what their score is.

Each of the main three credit bureaus offer free reports, once a year. Here at carloans.ca, we recommend that you stagger these reports to come in through the mail once per quarter. That just makes the most sense, and gives you the best chance at getting an objective and accurate overall picture of your credit score throughout the year. What’s more, it’s the most sensible way to make sure that the credit repair techniques you’ve been putting into practice in Toronto are having the desired effect.

Conclusion

No matter whether you’re a past master at credit repair in Toronto or whether you’re new to the practice, your score can take a while to recover; and if you’re trying to get a car loan, it can be an exercise in frustration receiving rejection after rejection after rejection.

That’s why here at carloans.ca we’ve made it a priority to provide automobile loan approval services for people with any kind of score. No matter whether you’re closer to the 300 or the 850 end of the spectrum, we consider every single application for a loan we receive—so why not give us a call? We might just be able to help you out with your situation.

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