In Canada, a credit score is a 3-digit number that you build (up or down) based on your use of credit products, such as loans, credit cards and bills. It is constantly changing, so monitoring and improving it is a life-long process.
Here is how your score is calculated:
- Payment history of credit cards, car loans, student debt, mortgages, department store credit, and other loans, including tracking any late or missed payments.
- Credit history assesses how long you’ve had credit and how you’ve managed it.
- Used credit versus available credit looks at revolving credit only, and includes your lines of credit and credit cards and your balance of having the credit versus using it.
- Credit mix is the variety of types of credit being used.
- Credit inquiries are done by lenders every time you apply for credit.
What credit score should you aim for?
A bruised score (anything under 560) will mean you’re going to need help getting approved for credit, including a mortgage, car loan, or credit card. Getting a mortgage isn’t out of reach, and is worth a conversation with a mortgage broker.
A good score would be up to 724, a very good score would be up to 759, and an excellent score is 760-900. Higher scores mean you’ll have access to more credit and lower borrowing rates.
Myths about credit are common. Life events such as getting married or divorced, salary changes, or seeing a credit counselor do not impact your credit. Using debit instead of credit when making a purchase, and requesting/monitoring your own credit report for accuracy and fraud also have no impact on your credit score. In fact, monitoring your credit is a great way to prevent fraud. Requesting your free credit report from Equifax or TransUnion once a year and looking for inaccuracies or signs of fraud is a great start. Also notify banks and creditors when you move.
Want to improve your credit score?
Here are the basic principles.
- Always pay your bills on time. You don’t have to pay the full balance of a revolving credit line, but you need to make at least the minimum payment on credit cards, lines of credit, etc. A good figure to keep in mind is having the outstanding balance no more than 30-35%.
- Use less credit. Paying off loans, paying down revolving credit sources, and keeping balances as low as possible reduces your debt load. Don’t apply for new credit if it’s not necessary.
- Keep old accounts. Keep the accounts with the most history open. An old credit card or hydro account can provide a valuable credit track record.
Credit scores can be improved!
Over time, and with better credit management, you can overcome financial missteps. The amount of time it takes will vary based on how serious the credit problem was. A bankruptcy stays on your credit report for 7 to 10 years. One late payment or a few credit checks will typically take less time to recover from. Patience and diligence moving forward will help your score.
Whether you need help with a difficult qualification or negotiating the best rate for the best credit histories, I’m here to help.
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