When it comes to a vehicle loan application, the most important aspect (often the first point of interest for any financial institution) is generally the credit score of an individual. Contrary to popular belief, the financial institution will need assistance to determine this score and on occasion, they can also be powerless as to the result of same.
Although this score is based on many factors, the number which is used to score this process will determine whether a loan application is approved or rejected. In addition to determining the terms set out for any loan including the terms and rate of interest applied.
How is information in my credit report used?
Credit information is generally gathered by credit reporting agencies (often called credit bureaus). The two major credit reporting agencies in Canada are Equifax Canada and the TransUnion of Canada. Governed by provincial and federal laws, credit reporting agencies store and maintain credit information about individual Canadian consumers for use by members of the credit reporting agency. Members include banks, finance companies, auto leasing companies, credit card companies and retailers.
Credit grantors update individual credit reports regularly by providing information to credit reporting agencies about their customers’ credit and payment activities. This ensures that credit reports remain up-to-date and as complete as possible. Other sources of the information contained in your credit report can include public records from courthouses across the country and collection agencies (source: www.equifax.ca)
Your credit score explained
Credit bureaus are renowned for being the most prominent analytic company who calculate and issue a credit scoring. Having considered a wide number of factors and variables, both – Equifax Canada and the TransUnion of Canada apply a credit score rating to every individual.
- 300+ is generally considered as a ‘poor’ (less favourable) credit score and can often prove difficult (although certainly not impossible) in securing financing.
- 560+ is often classified as a ‘fair’ credit score with generally plenty of opportunity for a favourable finance application.
- 660+ is classed as a ‘good’ credit score and most Canadians are are typically within this range.
- 760+ is considered as a ‘very good’ credit score and most financial lenders find this number desirable.
- 850+ is classified as an ‘excellent’ credit score and financial lenders will provide the best terms and rates possible.
Credit scores are an integral part of the process when it comes to a loan application. Additionally, it’s worth noting that your credit score is something that can be managed and just as importantly, something which can be improved over time.
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