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Credit Scores 101

Understand credit scores and start improving your overall credit.

Credit scores

Credit scores in Canada are a huge part of a person’s financial credibility. If you have a strong credit score, you can easily apply for rentals, loans and rewards credit cards without having to worry about your credit score hindering your chances of being approved. In Canada, a credit score can grant or hinder your access to several goods and services. Credit scores ranging from 660-900 are good to excellent scores.

Credit bureaus, such as, Equifax and TransUnion calculate your credit scores and update them frequently. Credit bureaus use your personal information in your credit file to calculate your scores. Factors used to calculate your credit score include the following:

  • Payment history
  • Existing debt
  • Length of credit history

You can easily view your own credit score through Equifax and TransUnion. A credit check done by you won’t affect your credit score and is called a soft check.

On the other hand, a credit check pulled by a lender or credit issuer can result in a hard check and can slightly lower your score. Hard credit checks only take place when you apply for a mortgage, loan or credit card. Usually, hard credit checks need authorization by the account holder before they are processed.

Understanding your credit score

Here’s a breakdown of credit scores in Canada:

  • 740 and more: If your credit score is more than 740, you have excellent credit. A high score like this shows that you can repay all of your debts on time and handle your credit extremely responsibly. You can easily be approved for loans and other services, as lenders and issuers will see you as a financially responsible borrower.
  • 660- 740: This is considered a good credit score. Most Canadians tend to fall into this range. Remember to avoid going over your credit limit to help increase your credit score.
  • 600-660: A score in this range shows that you are a high risk applicant, so you’ll experience difficulty when applying for credit. Make sure you regularly pay off your minimum statement balances diligently. You can also consider talking to a credit counsellor.
  • 300 to 599: A credit score in this range is considered as bad credit. Your score shows that you are unable to repay debt and struggle with finances. You will need to repay any existing loans or credit balance. If you have a high credit card balance, you can consider getting a balance transfer credit card or secured credit card to rebuild your credit. With such a low credit score, you won’t be eligible for most opportunities. Learn about balance transfer credit cards and secured credit cards to see how you can start rebuilding your credit today.

4 tips to improve your credit score

If you have a credit score that you’re unhappy with, worry not! You can slowly rebuild your credit by following good financial habits.

  • Pay your bills on time: Always make sure you pay all your bills on time. This includes your phone bill, hydro bill, credit card balance etc. Late or missed payments on any account may be reported to credit bureaus, and impact your credit score. Take advantage of email and SMS alerts to stay on top of your bills. Don’t skip any bill payments, even if you’re disputing a bill.
  • Monitor your credit score: Keep an eye on your credit score and check for any unexpected credit inquiries or drops. Unexpected changes can be a result of fraud or miscalculations, so always keep an eye on your score to see if there are any unauthorized credit inquiries or alerts. If you find information you believe is inaccurate or incomplete, immediately contact the lender or creditor.
  • Monitor your credit utilization ratio: Your credit utilization ratio is your balance divided by your overall credit card limit. If you consistently use all of your credit card limit and not pay it down, it can adversely impact your credit score. Keep your credit utilization ratio low by not consistently racking up high credit card debt and paying your statement balance regularly.
  • Apply for credit sparingly: Don’t apply for multiple credit accounts within a short period of time. Such behavior will result in many hard credit checks, and together can have a significant impact on your credit score. Space out such applications and don’t apply for lines of credit you don’t need.
  • Utilize your credit card: The best way to build credit is to use your credit card and pay it off fully on a regular basis. This reflects your ability to borrow and pay off debt. Not having a credit card or having one but not using it, won’t help you exercise positive credit card habits and improve your score.

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