You’ve seen the ads. There are all sorts of companies offering free credit scores now.

Why this sudden surge? Is that a good thing (for you) or a bad thing?

Does it leave you a little confused? Does it seem a bit like a snake’s den, with hundreds of snakes intertwined?

Let me help you untangle the knot of interwoven options.

  1. There are only two credit bureaus in Canada, TransUnion and Equifax. All the others are not credit bureaus. They are merely marketing companies (Markcos, for short) who have established relationships with one of the two to provide consumers with the information for free that the bureaus generally provide for a price.

Why would the bureaus do this? Evidently, because their arrangement with the Markcos provides them with the funds they would otherwise get directly from the consumer. What their arrangement is, I have no idea.

Why do the Markcos flog their “free credit score” promotions? Because they use them to promote credit providers, and likely have a deal with the credit providers to get a kickback when you bite. They gamble that they can bring in more from vulnerable consumers than they have in costs (to the credit bureaus and their own administration), and thus run a profitable business. Someone is feeding their family, and maybe even getting rich doing this.

  1. There are many credit scores out there, and they aren’t all the same.

People often ask me why their scores are different from Equifax and Transunion (and other providers.)

There are several reasons. First, credit bureaus, themselves private businesses not public services, make their money by charging creditors to submit their information to the bureaus. Not all creditors will register to supply both bureaus with the information. So the base data is not necessarily identical.

Second, and related to the first, even when creditors have relationships with both bureaus, they don’t always report everything to both. I’ve seen many discrepancies between the reports from the two bureaus even when a creditor reports to both.

Third, while the weighting of the different reportable ingredients is generally the same between the two bureaus, they each have their own proprietary algorithms for calculating the score. They are not identical (and highly secretive.)

And, guess what! The markcos aren’t privy to the bureaus’ algorithms either. They may have their own algorithms, tweaked for their own purposes. Your bank (a markco) may tweak it one way, Creditkarma, Clear score and Borrowell may tweak it differently.

Fourth, the scores that mortgage brokers will get when they hit up your score is not necessarily the same as what you will get when you hit up your score, even when it is with the same bureau. That’s because the bureaus have different algorithms for soft hits than they do for hard hits.

Does that seem fair? Absolutely not. But it’s their business and they can run it any way they like (at least until it gets regulated by government.)

  1. Credit scores are not the only thing that matters. The ingredients of your report are also important.

That’s especially true when applying for a mortgage. There are many things other than the score that will trigger red flags to a lender—or perhaps green ones. So, it is always important to get both your score and report. One without the other will not be an accurate indicator as to how close you are to qualifying for a mortgage. Mortgage brokers and credit coaches (like me) can help you sort through all the other nuances of your report.

  1. Errors creep into your credit bureau data.

Errors such as a paid off loan not being reported by the lender and still showing as unpaid. Errors such as a collection being reported multiple times. Errors such as collection being paid off and not being reported. Errors such as debts that were included in a consumer proposal not being declared as such on your report (and thus, still shown as outstanding).

[I’ve talked to my MP about this problem, which is huge. I suggested two regulations: 1: making it mandatory for a creditor who has reported a loan (or collection or consumer proposal, or bankruptcy, etc.) to report its completion within 30 days; and 2: requiring a collection agency to give the client a 30-day advance notice of an impending collection report to the bureau, so that the collection could be paid during that 30-day  window to avoid the report.

He said it was the very first time anyone had ever brought the problem to his attention. So, such regulation is not likely to happen any time soon (especially coming from the opposition.)]

You can get errors corrected but it is often an arduous process. But regardless of the aggravation, it is absolutely necessary to do so if you are seeking a loan, a new credit card, and, especially, a mortgage. If you have difficulty, there are services out there who will work with you to do it for you, for a fee, of course. I have connections and am happy to facilitate that.

  1. Which credit score can I trust?

It’s best to go straight to Equifax or TransUnion. Beyond that, the two free ones I recommend are Borrowell and Creditkarma. I wouldn’t put much stock in the ones coming from your bank, and I don’t accept them from rent 2 own clients. [By the way, we always get clients to do their own credit check and submit it to us; that way it is a “soft hit” and won’t affect their score negatively like a “hard hit” would].

At the end of the day, CMHC and the other mortgage lenders will likely check both Equifax and TransUnion when considering you for mortgage approval, so you need to correct all errors on both.

At least, that’s how I see it . . .