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Since Toronto is one of the most expensive places to live in Canada, many Toronto residents have trouble keeping up with all their bills. As a result, their credit scores and credit reports get damaged, and a lot of improvement is needed before they can truly get back on track. If that’s the case for you, it’s better to start the credit improvement process sooner rather than later.
The Significance of Your Credit Report and Credit Score
It can be frustrating to learn why your credit health is so important to your financial future in Toronto. However, with a better understanding of the subject, you’ll have a clearer idea of how beneficial credit improvement can be to your life in Toronto. Let’s start by explaining two of the credit components that play a major role when it comes to your credit health.
Want to know the difference between your credit score and credit rating? Find out here.
Your Credit Report
For the sake of argument, let’s say you applied for a credit card, which is one of the simplest credit products for most credit users in Toronto. As soon as you start using the card, your credit card company will report your progress to Canada’s major credit bureaus; Equifax and TransUnion.
Each bureau will compile a slightly different version of your credit report; a detailed profile containing all your credit-related actions over a certain number of years. Within the report, you’ll find your history of payments, credit account types, and credit ratings for those accounts. For an extra fee, you can also get a copy of your credit score. When you apply for new credit, your potential lender in Toronto may request your report to confirm your ability to keep up with the payments to follow, otherwise known as your “creditworthiness”.
Check out this infographic to learn even more about credit scores.
Your Credit Score
When a lender in Toronto checks your credit report, they can also see your credit score, as both will come bundled in one document. Ranging from 300-900, your score also displays how you’ve been performing as a credit user in Toronto and any other city in Canada. If you handle your credit accounts responsibly and make full payments by their scheduled due dates, your score goes up.
The closer your score is to 900, the healthier your overall credit is and the easier it will be to get your applications approved in Toronto. However, the opposite effect can also be seen the more your score drops toward the 300 mark.
Read this to learn why there are two versions of your credit score.
How Your Credit Score Affects Your Creditworthiness
Below, we’ve included some of the main credit score ranges so you’ll have a better idea of how the approval process works:
Good Range (680-900)
If your credit score is hovering in this range, it likely means that you’ve had little to no trouble making payments responsibly. If you’re a seasoned credit user in Toronto, it can also signify that you’ve worked hard to improve your score following a few defaulted payments or delinquency. Either way, a score within this range makes lenders in Toronto confident in your creditworthiness. As a result, you’ll have higher odds of approval but a lower, more affordable interest rate.
Fair Range (620-679)
As your score drops, your approval chances will drop along with it. However, your interest rate will only get higher. If your score is within the fair range, it’s likely due to a few missed, late, or short payments. It could also mean that you’re still in recovery following some type of delinquency. Regardless, your potential lender will become more skeptical of your financial ability. Although, you won’t have too much trouble accessing the products you need.
Made a late payment? Here’s how you can rebuild your credit.
Bad Range (300-619)
Be careful, because when your score dips into the bad range, you’ll only receive the worst approval chances and interest rates available. Not matter what the cause of your bad credit is, lenders in Toronto may consider you unworthy of credit. The further your score falls toward 300, the less likely you’ll be to get approved. Even if you do receive approval, your interest rate may be so high that you can’t afford the product at all, which would, in turn, lead to even worse debt problems.
Routines That Lead to Bad Credit in Toronto
While a missed payment here or there won’t destroy your credit, making that a routine certainly will. In fact, there are plenty of other avoidable habits that a consumer like yourself can fall into, any of which can lead to total credit ruin, such as:
- Constantly missing payments
- Fraud, identity theft, or a loan scam
- Taking more consumer or household debt than your income will support
- Getting your hours/income reduced at work or losing your job entirely
- A car accident, medical emergency, or another unexpected cost
- Legal issues (divorce, lawsuit, etc.)
- Financial delinquencies, such as a:
- Debt settlement
- Consumer proposal
Take a look at this infographic to learn how bad credit can affect your daily life.
How to Reverse Bad Credit
The good news is that even if you have bad credit, there are plenty of ways to improve and eventually reverse the situation altogether. Obviously, if you have a terrible credit score (under 500), it’s going to take a lot more work. That said, it can be done, as long as you’re willing to try hard. Here are a few straightforward credit improvement techniques that you can try:
Create a Budget For Your Lifestyle in Toronto
First and foremost, it’s essential to know where your money is going (and where it needs to go), otherwise all your bills can get jumbled, leading to defaulted payments. List all your regular and necessary costs, cut out the ones you don’t need, then compare them to your income. This way, you’ll have a better idea of what you can afford in terms of your payments and interest rate.
Searching for a guide to budgeting? Look here.
Earn More Income
One of the key principles of credit usage is to never take on a credit product that your income can’t support, otherwise unmanageable debt is sure to follow. Nonetheless, if that product really is necessary, then it’s best to increase your income however you can. Ask for a raise, work lots of overtime, take on a second job or a side hustle. Toronto is bustling with all kinds of business activity so finding an odd job for some extra cash shouldn’t be too hard. Do whatever you can to access that product while staying out of bad debt.
Pay Away Outstanding Debts
Like we said, your bad credit might be caused by the amount of debt you already have. The longer your debts go unpaid, the worse it will be for your credit health. So, before you apply for any new credit in Toronto, no matter how small, get rid of your outstanding debts in whatever way you can. Start with the highest interest debts, then work your way down until everything is cleared away. Not only will this help improve your credit, but it also shows future lenders in Toronto that you’re a hard worker and a responsible borrower.
Take a look at some debt management tips.
Routinely Check Your Credit Report
Similar to your budget, checking your credit report on a regular basis is a good way of knowing exactly where your credit health is. You can request your report from either credit bureau (we suggest you check both versions), once per year, free of charge. Although any additional checks would cost a fee, it may be worth the price if you’re constantly dealing with credit problems.
Another reason to check your report is to review for errors. While identity theft, fraud, and scams can also be seriously harmful to your credit (make sure you report any of these issues to the bureaus), even the smallest of errors can do the same. An incorrect address or social insurance number, information that wasn’t reported properly by a lender, any little mistake can have a huge ripple effect.
Read about the 5 most common errors that can be found on your credit report.
Helpful Credit Building Products in Toronto
If the more basic credit improvement techniques above aren’t enough, don’t panic. There are a few products that any Toronto credit user can apply for that are meant specifically to build credit, including but not restricted to:
- Secured credit card
- Credit rehabilitation savings program
- Credit counselling
- Debt consolidation loan
- Debt consolidation program
Getting Back On Track
Having bad credit is not an easy thing to live with. It can put a lot of strain on your financial situation in Toronto. However, Loans Canada can provide you with a solution that will help you manage and improve your credit health. Contact us today for more information!