How a TransUnion credit score can make a difference in an approval

One three-digit number has a lot of power. A client’s credit score is a critical factor in getting approved for a mortgage, and it can affect the interest rate on that mortgage.

That credit score is calculated using a complex set of algorithms that consider the following factors:

• Length of credit history
• Payment history
• Ratio of used credit to available credit
• Inquiries by lenders into the credit file
• Public records of bankruptcies or collections

To further complicate matters, a person’s credit score may differ depending on whether it’s pulled from TransUnion or Equifax.

TransUnion vs. Equifax: Exploring credit score agencies

TransUnion and Equifax are Canada’s two major credit reporting agencies. Lenders and banks provide these agencies with information about their customers’ banking and credit products and activities.

Although they both use similar factors to generate a credit score, their scores may not be the same. Here’s why:

• Credit reporting agencies use different algorithms to calculate the score, and they may include or exclude some types of credit or weigh them differently. For example, one model may include cell phone providers in its calculations, while another does not, even if the cell phone account appears on the credit report.
• Banks and other lenders might report to only one of the two credit agencies, which means they are working with different data.
• Banks and other lenders have different reporting schedules, so a person’s score will change depending on how current the information is.

Credit score report factors

TransUnion Canada uses their CreditVision^TM model. Equifax uses a model called Equifax Risk Score^TM.

Credit reporting agencies don’t share their formulas, but this is a general guideline as to how they weigh the factors that make up a credit score:

• 35% payment history
• 30% level of debt/amounts owed
• 15% age/length of credit history
• 10% types of credit/credit mix
• 10% credit inquiries/new credit

However, each credit agency’s algorithm may place a slightly different weight on these factors, which contributes to the different scores your client will have with TransUnion and Equifax.

Their rating scales both run from 300 to 900, but their ranges for each level vary.

Working with Bridgewater using a TransUnion Score

Not all lenders accept both credit bureaus. Bridgewater Bank (BwB) accepts whichever score the mortgage broker pulls and attaches to the application. Here is how to best use the application process to benefit your client:

1. Pull the client’s credit score. Because you the broker, pay to pull these, you may wish to pull only one.
2. Reach out to a BwB Business Development Manager to review your client’s credit before you submit the application. If your client’s Equifax score doesn’t fit well with one of our mortgage products, we’ll suggest you check their TransUnion score. It could be the difference between an approval and a decline.
3. Submit your client’s mortgage and credit application, attaching the credit report you’ve selected. Double-check before hitting send—whichever report you send to your underwriter is the one that will be used to evaluate your client’s deal.

Of note, if the primary borrower’s credit score is below 500, an underwriter will review and likely decline the application because it does not meet our guidelines.

Credit score advice for your clients

Fixing a credit score doesn’t happen overnight and should be part of long-term financial planning.

Advise clients to check their credit scores regularly and correct any errors. If there are any discrepancies noted on the bureau, have it corrected as soon as possible as it can take up to two weeks for it to properly reflect on bureaus. Every 12 months, Canadians can request one free copy of their credit report from Equifax and TransUnion. They should check both because each provides different information about accounts.

• When someone checks their own score, it’s considered a “soft” check. This does not affect their score.
• When a lender or credit company checks the score, it’s considered a “hard” check because it alerts the credit bureau that the person is preparing to accumulate some type of debt. This could affect the credit score.

If your clients have questions about credit scores and reports, here are some resources to share with them:

• Practical money skills: ca/personalfinance/creditdebt/history/
• Canadian Bankers Association: ca/understanding-your-credit-report
• Government of Canada – canada.ca/en/financial-consumer-agency/services/credit-reports-score/credit-report-score-basics.html