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Fixing Your Credit Score

Myths About Credit Scores

Your credit score is important. If you want to borrow money or get new credit for nearly any reason, lenders will look into your credit report to see your credit history. If you have a good credit score, you’ll be more likely to get the loan you want, and you’ll have a much better chance at getting a favourable interest rate. However, if you have poor credit or no credit, it will be tougher to get a loan and you’ll likely be offered a higher interest rate if you do. This can be costly as paying large amount of interest makes it very expensive to borrow money.

However, there are many different myths about credit scores and it’s important to understand the facts. Here are some myths that, unfortunately, still get passed around, as well as the truth.

Myth: Your Income Affects your Credit Score

Your credit score is a three-digit number that represents the information in your credit report. What information is in your credit report? In general, it lists any loans that you have taken out in the last six years, how much you owe on these loans, the limit on each account, how often you make payments, and other details. What information isn’t in your credit report? Your income.

That’s because your income has no direct connection to how much debt you have or how often you pay your bills. You can earn a lot of money and still have a lot of debt, just like you can earn a lot of money and still frequently miss payments. The opposite is true as well: someone with a more modest income can be very responsible with how much they borrow and always make payments on time.

Your income does not affect your credit score.

Myth: You Only Have One Credit Score

In Canada, there are two major credit bureaus: Equifax and TransUnion. Creditors report information to these bureaus and the bureaus use the information they’re given to calculate credit scores. However, not all creditors report to both bureaus, which means they could be working with different information when they make their calculations. However, even if all your creditors have provided the same information to each credit bureau, that doesn’t guarantee each will have the same credit score.

That’s because the specific formulas that the bureaus use is kept secret. While the various factors that go into calculating a credit score are known (how often you make payments, the length of your credit history, how much credit you are using, etc). the exact calculations and how much each aspect is weighed in these calculations are not known.

The result is that you could very likely have more than one credit score.

Myth: You Have the Same Credit Score as your Spouse

Everyone has their own credit score, just like everyone has their own driver’s license or library card. If you get a speeding ticket or do not return a book to the library, these facts are recorded on your own personal record, not your spouse’s. The same is true for credit scores.

If a debt is your own, it is recorded only on your own credit report. However, joint debts and debts that are co-signed will be noted on the credit reports of both partners.

This doesn’t necessarily mean that you will have the same credit score as your spouse, however, as various factors come into play. Each person’s credit score is their own.

Myth: You Can Get a Free Copy of your Credit Score

Both TransUnion and Equifax will mail you a free copy of your credit report one a year. However, this is not the same thing as your credit score. Your credit score is a three-digit number that represents the information in your credit report. While you can gather a lot of information by looking at your credit report, you won’t be able to get your credit score for free from the major credit bureaus.

Both TransUnion and Equifax charge a fee to see your credit score.

Myth: Filing for Bankruptcy Ruins your Credit Forever

If you file for bankruptcy, it is noted on your credit report. In Ontario, this note remains for six years after you have been discharged. A consumer proposal is noted on your report for three years after it has been completed. These notes can negatively affect your credit and make it more difficult to get a loan.

However, your credit is not ruined forever if you file for bankruptcy. Bankruptcy is designed to give you a fresh start and a chance to rebuild your credit over time. Successfully borrowing and repaying debts on time will improve your credit score regardless of if you have filed for bankruptcy or completed a consumer proposal in the past.

Myth: A Poor Credit Score Can be Fixed Instantly

Rebuilding credit takes time. You need to have a proven history of borrowing reasonable amounts of money and paying these amounts back on time to improve your credit score. Any company that promises to “fix” your credit score instantly for a fee is not being honest with you.