How To Renegotiate A Loan When Your Credit Improves
If you've improved your credit score, you may be able to renegotiate your loan rate and terms with your lender. Find out how to renegotiate your loan.
When applying for a credit card, an important factor to consider is your credit scores – a numerical value between 300 and 900 that represents a borrower’s creditworthiness. This value is calculated based on the individual’s credit history which includes considerations for the number of open accounts, total debt, and payment history. From the lender’s perspective, a borrower’s credit score is the likelihood that the borrower will be able to repay their debt on time.
There is no ‘magic’ credit score needed to be approved for a credit card. It ultimately depends on the specific card provider and the requirements for each card (premium cards will usually require a higher credit score). In Canada, most card providers view a credit score of 660 as satisfactory and those with credit scores above this level should have no issues being approved for a credit card. However, those whose credit score falls below the 660 mark may find it more difficult to qualify for premium options.
One thing to note is that you have more than one credit score. The two main credit bureaus in Canada are Equifax and Transunion, and they both have their own formula to calculate an individual’s credit score.
Due to new regulations, you can check your credit report for free with both credit bureaus. Equifax makes both your credit report and Equifax credit score available to you online, while you can get your consumer disclosure report online each month for free with TransUnion. Credit card providers tend to pull one or the other, so you can research which credit bureau they pull from to know whether you are likely to qualify.
Credit scores generally play a big role in the approval of a credit card, as well as the credit limit and benefits you will receive. Below is a table displaying your likelihood of getting approved for new credit based on each credit score range:
Credit Ranges | Level | Approval and Type of Credit |
900-760 | Excellent | If you have ‘excellent’ credit, it is very likely that you will be approved for all types of credit, including loans and mortgages. |
759-725 | Very Good | With ‘very good’ credit, you will also have no trouble qualifying for the loan and credit products you want and need. |
724-660 | Good | Having ‘good’ credit will allow you to qualify for most types of credit but it is unlikely you will qualify for the lowest interest rates. |
659-560 | Fair | With ‘fair’ credit, it is likely that you will face some difficulties when applying for most credit products. You’re also likely to get stuck with higher interest rates and less flexible loan terms. |
559-300 | Poor | It is very unlikely that you will qualify for any credit products with ‘poor’ credit and you will have to build up your rating. You may qualify for retail credit cards and prepaid credit cards. |
There are many different ways to build your credit scores. But generally, there are five main factors that impact your credit:
Credit card issuers will also look at other factors besides your credit scores when reviewing your application.
One of the most important factors your credit card issuer will consider is your income, and whether or not it is a steady source of income that is sufficient to pay back your debt. Usually, credit card providers prefer to offer credit to those who are employed full time. Students, retirees, part-time workers and self-employed workers may find that they are eligible for lower credit amounts and have limited options in regards to which credit card they qualify for.
Your debt-to-credit ratio refers to the amount of revolving credit you have versus how much you’ve used. Credit card providers will usually consider how you have utilized previous credit accounts. Generally, lenders like to see debt-to-credit ratios around 30%, higher ratio can be a sign of overuse or inability to properly manage debt.
As such, even if you have good credit, it is still possible for your credit card application to be denied if you have too much existing debt or limited credit history.
Credit history includes detailed reports of whether previous debts have been paid in full and on time, and whether the debtor tends to keep a balance on their credit cards. Many credit card issuers will consider an applicant’s credit history to understand their long-term credit tendencies and whether they are likely to repay the debt they owe.
Credit Card | Interest | Annual Fee | Credit Score Required |
Best BMO Cash Back Credit Card | 19.99% | $0 | Fair to good |
WestJet RBC World Elite Mastercard | 19.99% | $119 | Good to excellent |
Refresh Secured Card | 17.99% | $12.95 (+$3/month for maintenance) | No minimum |
Koho Prepaid Visa Card | – | $0 | No credit checks |
Capital One Venture | 17.24% – 24.49% | $95 | Very good to excellent |
Those with a credit score below 650 will likely find it difficult to be approved for premium credit cards. However, there are a few different types of credit cards that you can still qualify for if you can’t meet the general credit score requirements.
One option is to apply for a retail credit card. A retail credit card is an offering created when retailers partner up with banks or banking networks to provide a credit service. Typically, retailers have less stringent credit requirements and may not even require a credit check.
A retail credit card usually offers special discounts and loyalty rewards programs for their store, as long as you keep your account in good standing. However, many retail credit cards come with higher interest rates, which can increase your interest expense if you don’t pay off your account balance each month.
Prepaid credit cards are another alternative for those with low credit scores. These cards require the cardholder to top them up with cash before any purchases can be made. After funds have been added to the card, it can be used just like any other credit card. While most prepaid cards don’t have a rewards program, there are some providers that do offer cash back rewards and other perks like a credit card.
However, it’s important to note, prepaid credit cards will not help you build your credit as it is not a credit product and payments are not reported to the credit bureaus.
Students may want to consider applying for a student credit card. These cards are designed for full-time students and have less stringent qualifications and requirements. Student credit card typically has no annual fees and a decent rewards system. However, they tend to come with lower credit limits which can lead to high debt-to-credit ratios. But it can also help students build their payment history while they are still in school, which may positively affect their credit scores.
Those with poor or limited credit history can also consider secured credit cards. A secured credit card will require the cardholder to provide a deposit which becomes the account’s credit limit. If the cardholder fails to make payments, the lender will simply use the deposit to pay off the balance.
Most secured cards don’t offer any rewards system, but they are considered to be a credit product so the payments you make may help build or repair credit.
While credit scores are very important and play a large part in the credit card application process, it is not the only deciding factor. There are many different types of credit cards that suit individuals with varying financial situations. As always, it is important to do some due diligence to figure out what options work best for you, and to spend within your means even when approved for credit.
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