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The data collected about how you manage credit tells a story to lenders about how risky it might be to offer you credit.
Over time, your credit history helps the lender when determining whether you’re approved for loans, credit cards and mortgages.
Your credit history is used to create your credit scores, an important benchmark that many businesses use to assess your credit risk. It’s important to know how they’re calculated and how your credit behaviour can shape your scores, so you can make smart financial choices.
On Credit Karma, you can see your TransUnion CreditVision Risk Score.
What’s the TransUnion CreditVision Risk Score?
The CreditVision Risk Score ranges on a numbered scale from 300 to 900 points, and the higher the score you have, the better.
This type of rating system might look familiar, but what sets this TransUnion model apart from other credit scoring models is its use of trended data.
Traditional credit models calculate scores based on your credit status at the exact moment in time that a lender accesses your credit.
On the other hand, the CreditVision Risk Score looks at historic and trended information over the past 24 months. This includes a historic look at your balances, payment behaviours and how many credit applications you’ve made.
In other words, this long-term, comprehensive view of each account on your report provides a more accurate assessment of your financial profile.
How is the TransUnion CreditVision Risk Score different from a traditional scoring model?
Unlike other scoring models you may have encountered, the CreditVision model uses trended data to provide:
- A score for people with little credit history. If you haven’t been able to get a score before, you might be able to now because details from your credit in the past two years can be accounted for in the assessment, not just the situation you’re in now.
- A more accurate score for people with a lot of credit history. You’ll see your profile based on your credit decisions and behaviour over time, not just the latest records.
What factors are used to calculate your TransUnion CreditVision Risk Score?
Knowing what does and doesn’t factor into your credit scores is an important step toward truly understanding your credit profile. The CreditVision model components that influence your CreditVision Risk Score include:
Items related to your payments and accounts:
- How much you pay on your accounts can affect your score. If you pay more than the minimum due, how much more you are paying on the account is considered. This can reward exceptional financial behaviour like paying your balances in full.
- Account status is the positive or negative standing of your account and whether it’s paid in full or 30 (or more) days past due.
- Debt amount is measured by your balance trends. For example, if you’re carrying a high balance on your credit cards, this may negatively affect your score.
Items related to your credit and use of credit:
- Available credit that you have on your credit cards or loans.
- Length of credit history shows the age of the oldest account on file.
- Credit utilization is the percentage of your available credit you’re using. Your utilization may factor in credit card use, loans and other lines of credit. However, the type of utilization that generally has the most effect on your credit score is your credit card use.
How do I calculate my credit card utilization?
Add up the limits of all your credit cards, then divide the total limit by the amount of credit you’re using.
For example, if you have two cards with limits of $4,000 and $6,000, then you have a total credit limit of $10,000. Now imagine you have a total of $800 in balances on both cards. That means your credit utilization rate is 8 percent, well below the recommended 35 percent.
TransUnion recommends that you try to use less than 35 percent of your available credit limit — however, it’s important to note that, even if your utilization is below the recommended amount, your credit score is calculated from many factors so it doesn’t mean you’ll automatically have a good score.
What are the credit score factors I should focus on?
TransUnion suggests consumers focus on the following:
- Paying your bills on time.
- Keeping your utilization below 35 percent.
You may have more control over these two factors, so it’s a good place to start when aiming to build your CreditVision Risk Score.
However, even if you do both of these things, they alone may not be enough to keep your score from being negatively affected by other factors, including derogatory items, which we’ll cover next.
What negative factors can affect your TransUnion CreditVision Risk Score?
Negative credit details, also known as derogatory marks, are instances of poor credit behaviour that might predict how you manage your credit in the future. Derogatory marks can include items like:
- Public record information including bankruptcies and legal judgments.
- Collections filed to recover money owed on delinquent accounts.
- Hard inquiries made by financial institutions when you apply for credit.
- Late payments or non-payments on credit accounts (from the date of your first failure to pay on time).
Note that soft inquiries on your credit reports do not negatively impact your credit scores. It’s considered a soft inquiry when you check your own credit on Credit Karma. This means you can check your score any time without worrying about the impact on your credit.
How long will information stay on my credit report?
The good news is that in Canada your positive credit information can stay on your credit reports for up to 20 years.
In addition, derogatory marks can stay on your credit for up to 14 years, but this will depend on the negative mark and the province where you live. Here’s how long each derogatory mark may stay on your reports:
- Collections accounts and defaulted accounts that aren’t settled through a debt repayment program: six years.
- Public records such as judgments and bankruptcies: six to 10 years.
- Multiple bankruptcies: 14 years for each bankruptcy from the date it’s discharged.
How to boost your credit score smarts
Credit scores aren’t just about data and algorithms. They could hold the key to your next big financial decision, from a new house to a new car or small-business loan.
Beyond knowing that your TransUnion CreditVision score is using the latest updates to give lenders a better look into your credit profile, it’s important to know when a credit score will matter in your life and how you can build a good credit score for when it counts.
In order to learn more about your credit scores, a good habit you can pick up right now (and to keep top-of-mind when making financial decisions) is to review your credit regularly. That’s where a service like Credit Karma comes in.
Your financial future can depend on the story that your credit history is telling lenders. Why not ensure that story is as accurate as possible?
To get a copy of your TransUnion Canada credit report and score, sign up for a Credit Karma account. You’ll receive updates on your credit status and tips for improving your financial profile, as well as alerts if anything requires your attention.
And the best part? With Credit Karma, your score from TransUnion Canada is always free.