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What is My Canadian Credit Score?
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A credit score is a numerical value assigned to all borrowers, representing a person’s capacity to repay a loan. This score converts the data in your credit report into an actual number, which lenders use and evaluate when making credit decisions and accepting new borrowers. This entails that if you’re interested in acquiring a loan, or line of credit, having a good credit score is crucial.
Everybody is entitled to his or her credit report and score, which can be purchased from the two credit bureaus in Canada: Equifax Canada and TransUnion Canada. Even though it’s not necessary, you should check with both bureaus in order to ensure correct information and no errors. More details regarding how to order your credit report can be found online, however, this process includes sending in two pieces of identification along with basic background information. The reports should be sent within two to three weeks. If you’re unable to wait this long for a free report, you can pay around $15 and obtain your credit report instantly online.
For TransUnion, follow these instructions to get a free credit report by mail.
For Equifax, the instructions for a free credit report can be found here.
Canadian Credit Score Ranges
The Canadian credit score ranges from 300, being the worst, to 850, being the absolute best. For instance, someone with a credit score between 700 and 850 would have a positive credit score, thus a higher probability of being accepted for a loan or mortgage. Similarly, someone with such a high score indicates that it’s unlikely they will default on payments. Due to all this, people with higher credit scores are typically offered lower interest rates and pay less in interest expenses. Borrowers with good credit scores are more trusted by lenders and have built credibility, which allows them to take larger amounts.
Generally, people with a credit score below 650 may have some difficulty obtaining new credit, thus your goal should be to have a credit score of 680 or more. If you’re far from this, don’t get discouraged, as it is possible to improve your credit score. Your score can increase or decrease depending on various factors and your behavior. Thus, be consistent with the following factors and your credit score will increase before you know it.
How to Improve Your Credit Score
In order to improve your credit score, follow these suggestions.
- Pay your bills on time. Set up payment reminders if you struggle with paying bills on time. Considering this is one of the biggest contributing factors of your credit score, it’s important to consistently pay bills on time. Some banks offer payment reminders through email or text message or through their online bank portal. You should highly consider setting up automatic payments with your credit provider, where the money will automatically be debited from your bank account.
- Try to pay your credit card bill in full by the due date. If you’re unable to pay the full amount, you’re required to pay at least the minimum amount shown on your monthly credit card statement.
- While canceling a credit card is a logical way to prevent yourself from racking up debt you can’t afford, it’s important for the health of your credit score that you do not cancel a card that you’ve had for a long time. A long history of responsible credit usage is very important if you want good credit.
- Stop using your credit card so often and if you can’t, at least use it responsibly. This means you should never go over the credit limit on your card, as you should try to keep the balance well below the limit. The higher the balance on your credit card, the more impact it has on your credit score.
- Reduce the number of credit applications you make, Every time a lender checks your credit report, your score gets reduced.
- Create a budget that works for you and your lifestyle (learn how to create a budget here).
- Check your credit report for errors on a yearly basis.
Keep in mind that repairing bad credit is not an overnight success. It takes time, patience, and there is no quick or easy way to do it. But, by following these suggestions and using your credit card very cautiously, you have the ability to rebuild your credit.
What Information is used to Calculate your Credit Score?
Your credit score is calculated using five pieces of financial information based on your credit history. Each of these factors plays a significant role and holds a specific “weight,” as some factors are more important and have a stronger influence on your score than others. While some of these elements have a significant impact on your credit score, like payment history, others do not. The following explains the five factors used to calculate your credit score and how important each one is.
Payment History (35%)
Your payment history is the largest, most “heavy” factor, carrying the highest contribution percentage. This means your payment history contributes to 35% of your credit score, which is a big portion. Thus, if you have a positive history, your credit score will likely be high, while a negative past will definitely damage your credit score. Knowing this, pay all your bills on time and in full, so that your payment history remains positive and your score remains high.
Debt Owed (30%)
The amount of debt you currently owe plays another major role in calculating your credit score, as individuals who carry a high amount of credit card debt will have a lower credit score. As the second largest contributor to your credit score, work on eliminating your debt and your credit score will significantly improve. Remember that owing debt also means racking up interest charges, so paying off debt will not only increase your score, but it will save you money in the long run.
Length of Credit History (15%)
This factor takes into account how long you’ve been a borrower for and how long you’ve held a line of credit. An individual who is established and has used credit cards over a long period of time is often seen as less risky than someone who is just receiving their first credit card. Since your credit score looks at how long your accounts have been open, make sure to leave all old account open, even if they have zero balances. While you don’t have to use these accounts, leaving them open is better for the overall health of your credit.
New Credit (15%)
Every time you apply for a new loan or credit product, the lender performs a hard pull of your credit report and your credit score will drop a few points for several months. This is why it’s so important that you do not apply for too many new credit cards or loans all within a short period of time, your credit score could drop significantly more than a few points. Furthermore, when a lender sees on your credit report that you’ve applied for multiple new accounts all at the same time this can indicate to them that you’re having trouble managing your finances and may be a risky borrower.
Types of Credit Used (10%)
When determining your credit score, types of credit used are also a small factor taken into consideration. There are certain types of debt that are more beneficial for you in the long run compared to other types of debt. For instance, owning a credit card from a major traditional financial institution is much more favorable than having a store credit card. In addition, having a mix of different types of credit will also help build your credit score.
Click here to check our credit score breakdown infographic.
How Irresponsible Financial Decisions Affect Your Credit Score
Being irresponsible with your credit card and spending habits will decrease your credit score significantly and may land you into debt. Remember that having a credit card means you’re liable to repay your lender on time, with the appropriate amount. Being forgetful and missing payments will lower your credit score, even more so if you don’t pay the minimum amount. If you’re lazy and haven’t ever checked your credit report, which you can do for free, follow the steps we mentioned before and get a copy of your report to ensure no errors. If you have debt racking up and you’ve decided to ignore it for the time being, do something about it. Start saving up and pay off your debt as much as you can, consolidate if you have too.
Every financial decision you make every day affects your credit score, so make sure to be smart. Making irresponsible financial decisions may not affect you right away, but it will hit your finances hard in the long run. Every single transaction you make counts, no matter how small the purchase may be. Especially when using a credit card, spending can be easier and even more tempting. That being said, you have to be responsible and cautious with the spending on your credit card. Make a budget, stick to it. Being strict and prudent with your credit cards in the present will really benefit your finances in the long run.
What’s the Point of Having a Good Credit Score?
The whole point of having credit is to prove to creditors that you’re reliable enough to take out a loan or line of credit. Having a good credit score shows lenders that you’re creditworthy and have a good history of making proper payments. Ultimately, a good credit score will be one of the deciding factors of whether you get approved for new credit. If you do get approved, having a good credit score will land you a much lower interest rate, thus saving you lots of money in the long run. Like building a reputation, having a high score will provide you with better opportunities and more choices.
What is Good Credit?
Good credit means…
- Your trusted with large sums of money
- You can borrow money and pay it back on time
- You have a high credit score (650 or higher)
- Freedom to make bigger purchases
How to Protect Your Credit Score
If you’re worried about the health of your credit, consider a credit monitoring service (for more information click here) in order to protect yourself from fraudulent accounts and charges. This service acts as a personal security guard and you’re given frequent access to your credit report so you can check your history as much as you want. While monitoring your file, it also notifies you when there are changes made, such as new accounts opened in your name. Credit monitoring keeps you up to date and on track to maintaining a high, healthy credit score.
Are my Credit Score and Credit Report the Same Thing?
Your credit report contains all of your financial information. While it has your personal identifying information such as name and home address, it also includes your credit history, which is the history of all payments made to lenders and accounts open in your name. In your credit report, you may also find public records, which are items that may affect your creditworthiness such as bankruptcies. Your credit score is number created using the type of information that is found in your credit report. These are two separate items so make sure to check and maintain both on a regular basis.
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Margaret Johnson is in the business of helping Canadians tackle their debt, deal with credit issues, and regain control of their finances.