Paul Sabbagh - CFA, Regional Vice President, Commercial Banking, Montréal Metropolitan Community BMO

Financial institutions offer retail clients a wide variety of financing options ranging from traditional loans to mortgage lines of credit for day-to-day transactions as well as major projects.

Like they do for commercial lending, financial institutions determine a client’s creditworthiness on the basis of two essential criteria:

  • Credit history;
  • Ability to pay, which is based on the client’s indebtedness ratio, income stability and credit rating. This should be between 300 and 900 and indicates the client’s level of risk. The higher the rating, the lower the financial risk.

Everyone has a credit rating; it may be useful to know what factors are used to calculate it in order to optimize it. These factors are:

  • Payment habits (specifically, whether payments are made on time);
  • Credit history (how long the person has had access to credit);
  • Existing debts;
  • Number of credit inquiries;
  • Number and variety of creditors.

In addition to being able to obtain a loan with better conditions, a good credit rating can also be very helpful when shopping for home and auto insurance.