Understanding your Credit Score: How to Build Up a Credit Score in Canada
One of the most important pieces of financial information is your credit score. Lenders look at this score when you apply for a loan. Your credit score can impact the interest rate that you receive from a lender and determine whether or not you can get a loan.
What is a credit score? It is a number that is determined by your credit report. Anyone who has ever borrowed money in Canada or who has ever applied for a credit card has a credit report. This means that about 24 million Canadians have them. These reports contain a lot of financial data. Any loan you have taken out in the last six years is listed in your report. Your credit limit on each account is also detailed as well as how much you owe how often you pay on time and a lot of other financial info.
A credit score is a mathematical formula that takes the information in this report and translates it into a three-digit number.
Here are a few important points about credit scores:
- Credit score numbers range from 300 to 900 and the higher number the better.
- A person with a credit score lower than 650 will likely have some trouble getting new credit.
- Only 27 percent of the population has a score between 750 and 799.
- Four percent of the population falls between 300 and 559, which is generally considered poor.
- About 31% of Canadians have a score between 680 and 749.
- Your credit score represents a moment in time and changes depending on your financial activity.
- Only about 1 in 10 Canadians have checked their credit report in the last year
Checking your Credit Report & Finding out your Credit Score
Since a credit score is so important, it makes sense to know your score and to be aware of the information that is included in your credit report. The good news is that you can get a copy of this report for free by mail. To do so, you’ll need to request this information from the national credit bureaus in Canada. There are two national credit bureaus: TransUnion Canada and Equifax Canada. You should request your credit information from both bureaus. You can find steps on how to do so on the TransUnion website and the Equifax website.
It takes about two-to-three weeks to receive the report by mail. However, you can get an online credit report instantly. Both TransUnion and Equifax charge for an online service.
Your credit report will not list your credit score. To find out this number, you will have to request this information specifically. There is no free way to do this. However, you can request your credit score from both TransUnion and Equifax for a fee. Remember, your credit score represents a particular moment in time and will change based on your financial behaviour.
Improving Your Credit Score
Bruised credit can be rebuilt back to great credit over time. Some people may have the misconception that by speaking with a Trustee, their credit will be irreparably scarred. Talking to a Trustee is the first step in eliminating your debts. After that the work of rebuilding your credit starts.
The exact formula used to calculate your credit score is kept secret by credit bureaus. However, these bureaus do provide information on what can be done to improve your score.
Your payment history matters
Lenders want to see that you have an established credit history. If someone has a history of borrowing reasonable amounts of money and repaying this money successfully, this person has shown that he or she can handle having debt. Lenders like to see this.
One of the main factors is paying your debts on time.
Whenever you make a late payment, miss a payment or have your account sent to a collection agency, there will be a negative impact on your credit score.
It’s important to avoid running up your balance.
Using too much of your credit on a regular basis can be a problem. This shows lenders that you are unable to handle your monthly expenses without borrowing money. Try to keep your account balance lower than 75% of your available credit. For example, if you have a $2000 limit on your credit card, try not to borrow more than $1500 at any given time.
Avoid applying for too much credit
Every time you apply for new credit, the lender makes an inquiry into your account. Too many inquires can show that you are opening several credit accounts, which can be a sign of financial difficulties.
The higher your credit score, the less likely you are to become delinquent on a loan. Therefore, lenders are more likely to offer you a loan. Keep in mind that, while lenders use your score to help them make lending decisions, they will also use the other information available to them as well.
A credit score is also important because, in the event of bankruptcy, it can help determine the type of repayment plan than will work best for you. If you are considering bankruptcy, you should speak with an insolvency trustee and find out the options that are available to you.
For more information on rebuilding your credit, call our Customer Service Team at: (844) 507 7526.