Maintaining good credit is essential in Halifax, where loans and other credit products are among the most traditional payment methods for day-to-day expenses. In fact, having good credit in Halifax will simply make things easier for your living situation, so improving it whenever you can is key to keeping your finances in check.
Using Your Credit Score and Credit Report
Becoming a credit user is important in the world of finance. While some people in Halifax have extremely high incomes and can get by without credit products, that isn’t common practice with the majority of people in Halifax.
For example, the average home in Halifax can cost well over $300,000. Therefore, a mortgage is necessary for most aspiring homebuyers. If that’s what you’re trying to do, two of the most important elements to have are a healthy looking credit report and credit score. Although there are lenders in Halifax who won’t check credit when you apply for small amounts, that likely won’t be the case for larger, more expensive products.
Is being part of the 800 credit score club really that important? Find out here.
Your Credit Report
In Canada, there are two main credit bureaus; Equifax and TransUnion. These bureaus keep your credit report on file, which is a type of personal profile detailing all your credit-related activity over a number of years. For instance, if you make a credit card payment at some point, it generally shows up on your report for 6 years. During that time, if you were to apply for new credit, your potential lender in Halifax can request a copy of your report, see that payment, and judge your creditworthiness based on it. If your report is full of positive information, the results for your approval will be good, and vice versa.
Look here for more information about your annual credit report.
Your Credit Score
When a lender in Halifax or any other city in Canada requests your report, they can also look at your credit score as a more simplified way to know how creditworthy you are. In other words, what level of risk would be imposed on them if they were to let you borrow?
Your score ranges from 300 to 900 (click here for more information about credit score ranges). It goes up and down according to your credit usage. Responsible behaviour, such as complete payments, causes it to rise. Irresponsible behaviour, such as defaulted payments, causes it to drop. The closer your score is to 900, the easier it will be on your financial life as a whole.
With good credit (score of 680-900), you’ll be offered:
- The best interest rates that any lender can offer
- Favourable contract conditions for any loan (or other product)
- More negotiating power in regards to your upcoming payment plan
- Better odds of getting approved for more expensive products, such as mortgages and car loans
Interested in more information about how your credit score is calculated? Click here.
Breaking Down Your Credit Score
In reality, no singular factor can be attributed to the way your credit score fluctuates. Actually, there are 5 factors that a credit bureau uses to tabulate your score:
Payment History (35%)
Obviously, the main element that makes up your credit score is your history of payments. As we said, every bill you pay or miss will cause your score to rise and fall. Lenders in Halifax can also use your history to know how responsible of a credit user you are. So, it’s important to make any designated payments on time and in full.
Amount of Debt (30%)
This element is particularly important when it comes to products with revolving credit limits, such as credit cards or lines of credit. The more money you owe to your lenders and the closer you get to your limit, the further your score will dip. For the best results, try not to use more than 30-35% of your available credit.
Want to know how to manage revolving debt? Look at this.
Length of Accounts (15%)
Simply put, the more mileage your credit accounts have, the better. Even if you haven’t been using it wisely, having one or two older accounts is still better for your score than consistently cancelling accounts and opening new ones.
Click here to see the effect your credit history length.
Credit Diversity (10%)
It’s also healthy for your score to have a variety of credit types in your name, as long as you’re making all your payments responsibly. Although having a couple of credit cards can be beneficial, throwing a loan into the mix can potentially raise your score further and show any future lenders in Halifax that you know how to handle credit.
New Credit Inquiries (10%)
When someone, including yourself, examines your credit report, it’s known as a credit inquiry, of which there are two types. Hard inquiries happen when you apply with a potential lender and will decrease your score by a few points each time. They’ll also stay listed on your report for 2-3 years.
Therefore, it’s better for your score if you don’t apply for new credit too many times within a short period, especially if you already have bad credit and are constantly being denied. Not only will this harm your score, but it can also make the lender in Halifax think you’re irresponsible since they’ll be able to see any notices of rejection on your report.
Habits That Lead to Bad Credit in Halifax
Your credit can be considered an asset, like your house or car. It can take some time to build, but once it’s in good shape, you can use it to your advantage. However, when you have bad credit, it can feel more like an anchor weighing you down. Don’t worry, we’ve listed a few of the major causes of bad credit so you can identify the problem.
Bad credit (score of 300-579) can be caused by elements such as:
- Making short or late payments for your credit products
- Missing payments altogether
- Taking on more consumer debt and/or household debt than you can afford
- Reaching or going over your credit limit (high credit utilization ratio)
- Applying for too much new credit or closing too many old accounts
- Losing your source of employment
- Fraud, identity theft, or errors on your credit report
- Financial emergencies that lead to missed payments
Unfortunately, when your credit is bad, a gradual negative effect will occur because lenders will consider you less worthy of credit when. No matter what the cause of your bad credit might have been, it’s a warning sign that you may not be able to keep up with the payments that will follow your possible approval.
At the very least, approval could come with a more expensive interest rate, less favourable contract conditions, and little to no negotiating power. On top of that, you could end up with a bunch of hard inquiries on your credit report, causing a lot of unnecessary credit damage with no reward.
Check out this infographic for a look at how bad credit can affect your daily life.
Improving Your Bad Financial Habits
That said, one good thing can arise from a bad credit product; the chance to improve your credit score. After all, making payments on time and in full for any credit product, good or bad, is one of the most effective ways of doing that.
Some other credit improvement methods include (but aren’t limited to):
- Reviewing and monitoring your own credit report on a regular basis
- Consolidating as much of your outstanding debt as possible
- Increasing the amount of income you’re earning
- Using less than 30% of your credit limit (reducing your credit utilization ratio)
- Tracking your spending with a proper budget
- Requesting that your non-credit bills (internet, cell phone, utilities, etc.) be reported to the credit bureaus
- Informing the bureaus when you find errors, signs of fraud or identity theft within your credit report
Here’s how to dispute an item on your credit report.
More Drastic Measures
All this said it is possible that you already have bad credit and are having trouble getting approved anywhere. If that’s the case and traditional credit improvement methods aren’t effective, there are more drastic products and programs that may help reverse the situation, such as:
- Secured credit card
- Credit rehab savings program
- Credit and debt counselling
- Debt consolidation loan
- Debt consolidation program
Want to know what a credit builder account is? Find out with this article.
Improving Your Credit and Your Future
If you’re a frequent credit user in Halifax, maintaining a good credit score and healthy credit report are essential steps for a better financial future. While doing so isn’t always easy, it will be worth it in the long run. If you’d like to learn more about the credit improvement methods above, be sure to contact Loans Canada.
