We’ve celebrated Thanksgiving and (in most parts of Canada) are enjoying the last warm days of the year. You’re probably not stressing about your holiday budget – yet. The good news is if you take some time to plan now, you could avoid that end-of-year money stress for good.
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Most people know that a good credit score is important. A good credit score enables you to qualify for bank loans, credit cards, make large purchases – and even tap into optimal interest rates or, in some cases, secure a job. It’s critical for your financial health and helps you achieve life goals.
But what about for individuals who are in a consumer proposal?
If you’re in a consumer proposal, you might feel worried about your financial future. More importantly, you might be asking yourself: Is it possible to boost my credit score right now?
The answer is yes, and you can begin working on this today. I’ll explain how, but first, let’s briefly review what a consumer proposal is.
A consumer proposal is a debt relief program created by the Government of Canada that allows individuals to regain financial stability and avoid bankruptcy. Those pursuing this option connect with a Licensed Insolvency Trustee (LIT) who proposes to creditors a recommended percentage of the debt to be paid. Once a formal agreement is reached with creditors, you’re required to make monthly payments over a period of time (normally 5 years).
Those in consumer proposal can retain their assets and get relief from collection agencies and escalating interest rates and penalties. After completion of the program, individuals are considered to be clear of their debt.
A consumer proposal is a great option available to those facing financial hardship and who are burdened by debt loads. But, as mentioned above, it doesn’t help your short-term credit rating.
So, what can you do about it?
First, you can take some comfort in the fact that your debts are marked as “7”, the code for “settled”, rather than “9”, the code for bankruptcy – or at least they should be.
There are additional ways, however, to take action immediately to improve your credit score. Below are three ways you can get going on this right away.
A simple and free (or low-cost) way to improve your credit score is to begin regularly monitoring it. If you’re not already familiar with what makes up a credit score, you can get a quick primer here.
Regularly monitoring your credit score provides you with an overall picture of your financial health and the opportunity to identify upward and downward fluctuations in your score. It also allows you to spot and address any errors or mistakes that may be negatively affecting your score. Errors do happen from time to time and this is probably not what you need right now. If you think you’ve detected an error or issue, you can report it to Equifax or TransUnion, Canada’s two credit bureaus.
You can also request a free copy of your credit report from Equifax and TransUnion once per year or you can pay a small fee to receive your credit score. A few Canadian companies, such as Mogo, Credit Karma, and Borrowell provide you with free monthly updates on your credit score and rating.
It’s also very beneficial to keep on top of your monthly bill payments, in addition to your consumer proposal payments. Your proposal should have taken into account your overall spending patterns and financial obligations. Making regular payments will improve your credit score in the short- and long-term and these improvements provide some added motivation.
It’s very difficult for those in consumer proposal to qualify for loans and credit cards due to their credit score. That makes it more challenging to rebuild their credit score because it takes credit to build credit.
Individuals in this situation have a few options to consider. If you’re looking to add a revolving credit product (marked “R” on your credit report), you can apply for a secured credit card to make purchases and improve your credit. A secured credit card requires a security deposit, an amount which becomes the credit limit and is held by the issuing financial institution. It’s easy to get approved, although candidates are normally required to have an income source. Those applying during consumer proposal need a letter from their trustee demonstrating that their proposal has been approved and is in good standing.
Although the allowable credit limits for secured credit cards can range from around $500 to $10,000, most applicants are approved for a small amount of around $1,000. Keep in mind that there is usually a set-up and monthly fee and that interest rates can often be a bit higher than other credit cards.
In any case, a secured credit card may be a good option to pursue if your opportunities for getting and building credit are limited. If you keep your account in good standing, it demonstrates a responsible use of credit.
If you want to add an installment credit product (marked “I” on your credit report), Climb offers the most flexibility and most competitive pricing of any product designed specifically for Canadians in consumer proposal with our Accelerator Plan. There’s no upfront fee and you can customize the amount you’re saving based on your budget, with plans as low as $7/week. Learn more about it here.
No matter which credit building options you choose, and when you choose to get started, one thing will always be true: credit scores can’t be fixed in a day. Your credit score is built month over month and year over year, as you show consistent credit repayment (often with an installment product like our Accelerator Plan) and responsible credit usage (often with a secured credit card).
By making a realistic plan based on your budget and lifestyle, you can not only get back to where your credit score was before your consumer proposal, but you can even improve your score.
It just takes time and a reliable payment history reported regularly to the credit bureaus.
Though it can be stressful to see your credit score drop while in consumer proposal, there are actions you can take to begin to repair it today. By understanding your options and taking proactive measures, you’ll be well on your way to a brighter financial future.
If you have any questions about your options, don’t hesitate to reach out to our team at Climb today.
Author: Ryan Watt, CEO
Guest written by our friends at LoansCanada.
Getting by without credit is rare for most people these days, especially in Canada, where credit cards and loans are two of the main ways that people deal with unexpected costs and sometimes even day to day expenses. So, when it comes to the health of your credit, is good credit enough? Or should we all be striving for perfect credit?
Check out these five healthy credit boosting tips.
In the world of credit, your credit score and credit report are important when you’re trying to get approved for most credit products, such as installment loans, lines of credit, and mortgages. That’s because both elements showcase your ability as a credit user.
When your first credit product gets activated, your creditor will send your information to either one or both of Canada’s major credit bureaus; Equifax and TransUnion. Typically, both bureaus will have a slightly different version of your credit score and credit report on file. When you apply for a new credit product, your lender may ask to pull your credit as a way of calculating your creditworthiness.
A three-digit number ranging from 300-900, your credit score is one of the first things that any potential lender will look at when considering you for new credit. Like a grade-point-average, your score is a basic way of depicting your credit health. Every good credit action you make will elevate your credit score, leading to all sorts of possibilities and benefits down the line. The further your score climbs toward 900, the better your approval results will be.
Your Credit ReportIn many ways, your credit report is even more important than your credit score. That’s because your report is a detailed file that contains a history of all your credit usage spanning over a predetermined number of years. Essentially, if your score is like your grade-point-average, then your credit report is like your report card.
Although your credit score gives a lender a simplified look at your creditworthiness, your report is used to get a detailed picture of the way you have handled credit in the past and the way you might handle it in the future. Your report also details your status of residency, social insurance number, and other kinds of personal information. For the best approval results and interest rates, it’s best to have a clean and healthy-looking credit report.
Generally speaking, good credit qualifies as having a credit score that falls somewhere between 700 and 900, although it’s important to keep in mind that what passes as good credit will vary from lender to lender. A good credit score implies that you have been and will continue to be responsible with all your active credit accounts. Good credit is also important because:
Having perfect credit, often represented as having a credit score above 800, is a surefire way of getting approved for any credit product on the market and saving money on interest. However, whether perfect credit is necessary really depends on what kind of credit product you’re applying for, how much credit you’re requesting, and the type of lender you’re applying with.
For example, if you plan to apply for a mortgage through your bank, your credit health would need to be next to perfect, because banks have high approval standards and a mortgage involves a significant amount of money. The more of a risk you pose as a client, the less likely they’ll be to approve you. On the other hand, applying for a small loan or traditional credit card poses far less risk, so perfect credit isn’t necessary.
All this said, there are plenty of other organizations that you can apply with if your credit is less-than-perfect, such as alternative, privately funded, and bad credit lending institutions. Just know that while your approval would be more likely with such places, your interest rate may be less affordable. This is one of the main reasons why all Canadian consumers should keep an eye on their credit and implement healthy financial habits so that they can build and nurture a good credit score.
The simple fact is, the more credit you use and the more loans you take on, the more opportunities you create to build and improve your credit. For those consumers who are looking to grow their credit, it is all too easy to become fixated on the idea of perfect credit. It’s important to keep in mind, while good or even great credit can help you achieve financial goals and creates opportunities, racking up excessive debt just to see a three-digit number rise, is not worth it.
Learn how to improve your credit score without increasing your debt, click here.
When All is Said and Done…
Perfect credit, while it may seem beneficial, is not necessary. In fact, it can be quite difficult to obtain “perfect” credit in the first place. So, if your credit score isn’t in the high 800’s, there’s no need to worry. Instead, aim to have healthy financial habits that lead to good credit.
Your credit score is like a grown-up version of a report card, for your finances. It shows a record of how you’ve used credit like credit cards or loans in the past, and if you were able to stay on top of other bills, too.
It’s not easy to guess what goes on your credit report, or how to build a higher score. Read below to find out how to get started with improving your credit score and how to keep it high.
The biggest element in your credit score is if you pay your bills on time every month. That makes up a huge portion of your credit score. When you make a late payment, the company notifies the credit bureaus that produce your credit scores.
To make sure you aren’t paying late, set up automatic payments from your bank account for all your bills. You can pay just the minimum if you can’t afford to pay the entire statement at once.
You can also create recurring calendar reminders in your phone, calendar or planner. If you prefer getting physical reminders of your bills, sign up for paper statements to be sent to your home.
As soon as you notice a late payment, call the company and make a payment right then. Usually, a payment needs to be more than 30 days late for it to show up on your credit report.
A credit score tells prospective and current lenders how you’ve used credit in the past. One of the factors that determine your “creditworthiness” is how much credit you’re currently using compared to how much you have available, also known as “credit utilization.” This makes up 30% of your credit score, so it’s an important piece of the puzzle. This mostly affects credit cards and lines of credit.
You can find your credit utilization ratio or percentage by dividing your current credit balance by the available credit limit. Look up your credit card bill and view the most recent balance and then find the total credit limit.
If your balance was $600 and your credit limit is $1,200, then your utilization percentage is 50%. That means you should pay off more of your balance or call the credit card provider to increase the limit – just remember, a higher limit doesn’t mean you should use it more! The goal is to keep your utilization below 30%, or $400 in this example.
It’s not uncommon for your score to be low because of a mistake or error on your credit report. That might be because your identity was stolen, and someone opened a credit card in your name. It might also be because you didn’t get a bill in the mail and the lender sent the bill to collections.
Look at your credit report to see if there are any mistakes and call the lender to ask about any collections or defaults. If you find an error, try to fix it as quickly as possible. This is especially important if you’re in a consumer proposal, which is often mis-reported as a bankruptcy.
Too many new accounts will affect the average age of your credit accounts. If possible, don’t open any new accounts unless you absolutely need it. If you have a lot of new accounts, a lender might think you don’t have enough cash on hand.
Want to talk through your credit report with an expert? Contact us for a free credit consultation.
Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.
In my last article, I looked at how do you update or dispute information on your credit report. However, it’s tough to spot an error on your credit report, especially if you don’t know how to read it in the first place. Being able to read and understand your credit report is a vital skill to have. If you don’t know how to read it, you won’t be able to spot any potential mistakes. This can hinder your ability to obtain credit with the most favourable terms and conditions.
Let’s take a look at how to read and understand your credit report.
There are two major credit reporting agencies: Equifax and TransUnion. Each has its own credit report. You can request one for free from each every 12 months. It’s a good idea to do that because one may be different than the other. For example, some lenders only report to one credit reporting agency. Likewise, one credit report may have an error, while the other doesn’t. Although the credit report format is slightly different, they both convey similar information.
At the top of your credit report, you’ll find personal information to identify yourself, such as your name, any aliases you go by, date of birth and social insurance number. Below that, you’ll find your address history and employment history. You’ll want to review to make sure it’s accurate.
A section you’ll want to pay extra attention to is any recent credit inquiries. If there are any creditors you don’t recognize, you’ll want to inquire with them. This could be a sign of identity theft – when someone steals your identity and tries to fraudulently apply for credit in your name.
There are so many different types of credit – car loan, credit card, line of credit, student loan and mortgage, to name a few. To make it easier to keep track, Equifax and Transunion have assigned the credit types with debt ratings. The codes are made up of two parts: a letter and a number.
The letter stands for the type of credit it represents.
I is for “installment loans” like car loans. An installment loan is any money borrowed as a lump sum for a specific timeframe to be repaid in fixed amounts or installments on a regular basis until the loan is repaid.
M is for “mortgage loans” like the mortgage on the home your family lives in. A mortgage is a lot like an installment loan. You typically spread the repayment over 25 years, making regular payments on a monthly basis.
O is for “open status credit” like lines of credit. You can borrow money as you need it up to your credit limit. You only need to pay interest on the amount that you borrow. Often you make interest-only payments to keep your account in good standing.
R is for “revolving or recurring credit” like your credit cards. This is the most common type of credit. Revolving credit is a lot like open status credit. You’re required to make a minimum payment based on the amount you borrow. Your minimum payment is usually a flat dollar amount or a percent of your outstanding balance.
Your debt rating also comes with a number. It can be between 1 (the best rating) and 9 (the worst rating to have). If you have a 1 rating on all your credit types, it will go a long way to boosting your credit score. If your credit score is higher than 1 too many credit items, it could negatively impact your credit score.
0 – Too recent/new for a rating; or approved, but not yet used
1 – Paid within 30 days of billing; pays as agreed.
2 – Payment 31-59 days late.
3 – Payment 60-89 days late.
4 – Payment 90-119 days late.
5 – Payment more than 120 days late, but not yet rated “9.”
6 – N/A
7 – You make regular payments under a special arrangement, such as a consolidating loan, with a credit counselling agency.
8 – The property has been repossessed
9 – The debt has been written off as “bad debt” and/or it has been sent to a collection agency; or you’ve filed for personal bankruptcy.
Let’s put them together. If you had a debt rating of R1, it means you have a credit card where you always make at least the minimum payment on time. However, if you have a M3 rating, it means that you have a mortgage where you’ve made a payment at least 60 to 89 days late.
There you have it. How to read and understand your credit report in a nutshell!
Need some help understanding your credit report? Contact our offices today. We’re happy to walk you through it.
Climb’s Personalized Credit Prescription provides you with customized recommendations to help rebuild your credit score.
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.
Your credit report, in a nutshell, is a history of how you’re using and have used credit. It provides a snapshot of your financial history. It’s one of the main ways lenders, such as banks and credit cards, assess you before approving your credit application. Your credit report includes important information, such as your name, address history, social insurance number (SIN), telephone number, date of birth, employment history, credit history, public records (bankruptcies or judgments) and any credit inquiries.
So, you check your credit report and see an error or something that’s out of date. How do you update and dispute this information? Read on to find out.
Although errors don’t happen very often, you’ll want to take steps to correct them when they do occur. Before we discuss correcting errors on your credit report, it helps to talk about how errors happen.
Here are some common reasons why errors or inaccuracies may occur:
The easiest way to spot an error on your credit report is to regularly review it.
There are two major credit reporting agencies: Equifax and TransUnion. You can request your credit report for free once every 12 months from each. It’s advisable that you order a copy of each, as each credit reporting agencies might have slightly different information for you.
Here’s how to order your credit report by telephone:
Tel: 1-800-465-7166
Tel: 1-800-663-9980
You’ve spotted an error or an outdated piece of information and you want to update it. Here’s how.
There you have it. All the steps you need to update and dispute information your credit report. By getting into the habit of regularly reviewing your credit report, you can spot errors and get them corrected right away.
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.
Most people know that a good credit score is important. A good credit score enables you to qualify for bank loans, credit cards, make large purchases – and even tap into optimal interest rates or, in some cases, secure a job. It’s critical for your financial health and helps you achieve life goals.
But what about for individuals who are in a consumer proposal?
If you’re in a consumer proposal, you might feel worried about your financial future. More importantly, you might be asking yourself: Is it possible to boost my credit score right now?
The answer is yes, and you can begin working on this today. I’ll explain how, but first, let’s briefly review what a consumer proposal is.
A consumer proposal is a debt relief program created by the Government of Canada that allows individuals to regain financial stability and avoid bankruptcy. Those pursuing this option connect with a Licensed Insolvency Trustee (LIT) who proposes to creditors a recommended percentage of the debt to be paid. Once a formal agreement is reached with creditors, you’re required to make monthly payments over a period of time (normally 5 years).
Those in consumer proposal can retain their assets and get relief from collection agencies and escalating interest rates and penalties. After completion of the program, individuals are considered to be clear of their debt.
A consumer proposal is a great option available to those facing financial hardship and who are burdened by debt loads. But, as mentioned above, it doesn’t help your short-term credit rating. In fact, when you’re in a consumer proposal, your debts are marked the same as those facing bankruptcy.
So, what can you do about it?
First, you can take some comfort in the fact that once you complete your consumer proposal, your debts are marked as “7”, the code for “settled”.
There are additional ways, however, to take action immediately to improve your credit score. Below are three ways you can get going on this right away.
A simple and free (or low-cost) way to improve your credit score is to begin regularly monitoring it. If you’re not already familiar with what makes up a credit score, you can get a quick primer here.
Regularly monitoring your credit score provides you with an overall picture of your financial health and the opportunity to identify upward and downward fluctuations in your score. It also allows you to spot and address any errors or mistakes that may be negatively affecting your score. Errors do happen from time to time and this is probably not what you need right now. If you think you’ve detected an error or issue, you can report it to Equifax or TransUnion, Canada’s two credit bureaus.
You can also request a free copy of your credit report from Equifax and TransUnion once per year or you can pay a small fee to receive your credit score. A few Canadian companies, such as Mogo, Credit Karma, and Borrowell provide you with free monthly updates on your credit score and rating.
It’s also very beneficial to keep on top of your monthly bill payments, in addition to your consumer proposal payments. Your proposal should have taken into account your overall spending patterns and financial obligations. Making regular payments will improve your credit score in the short- and long-term and these improvements provide some added motivation.
It’s very difficult for those in consumer proposal to qualify for loans and credit cards due to their credit score. That makes it more challenging to rebuild their credit score because it takes credit to build credit.
Individuals in this situation have a few options to consider. If you’re looking to add a revolving credit product (marked “R” on your credit report), you can apply for a secured credit card to make purchases and improve your credit. A secured credit card requires a security deposit, an amount which becomes the credit limit and is held by the issuing financial institution. It’s easy to get approved, although candidates are normally required to have an income source. Those applying during consumer proposal need a letter from their trustee demonstrating that their proposal has been approved and is in good standing.
Although the allowable credit limits for secured credit cards can range from around $500 to $10,000, most applicants are approved for a small amount of around $1,000. Keep in mind that there is usually a set-up and monthly fee and that interest rates can often be a bit higher than other credit cards.
In any case, a secured credit card may be a good option to pursue if your opportunities for getting and building credit are limited. If you keep your account in good standing, it demonstrates a responsible use of credit.
If you want to add an installment credit product (marked “I” on your credit report), Climb offers the most flexibility and most competitive pricing of any product designed specifically for Canadians in consumer proposal with our Accelerator Plan. There’s no upfront fee and you can customize the amount you’re saving based on your budget, with plans as low as $7/week. Learn more about it here.
No matter which credit building options you choose, and when you choose to get started, one thing will always be true: credit scores can’t be fixed in a day. Your credit score is built month over month and year over year, as you show consistent credit repayment (often with an installment product like our Accelerator Plan) and responsible credit usage (often with a secured credit card).
By making a realistic plan based on your budget and lifestyle, you can not only get back to where your credit score was before your consumer proposal, but you can even improve your score.
It just takes time and a reliable payment history reported regularly to the credit bureaus.
Though it can be stressful to see your credit score drop while in consumer proposal, there are actions you can take to begin to repair it today. By understanding your options and taking proactive measures, you’ll be well on your way to a brighter financial future.
If you have any questions about your options, don’t hesitate to reach out to our team at Climb today.
Author: Ryan Watt, CEO
Are you planning on borrowing money in the not-too-distant future for a major purchase, like a car or home? Before a lender extends you credit, they want to make sure you’re going to pay it back in full and on time. How do they do that? One way is by reviewing your credit score.
In fact, your credit score is a key factor that lenders consider before approving your credit application. By maintaining a good credit score, you’re more likely to get favourable loan terms, which can help you save money. Unfortunately, the reverse is also true.
If you’ve found yourself with a low credit score, you may feel worried about how it will impact your future. However, you’re not alone and there are several actions you can take to build or rebuild your credit score over time.
In this article we’ll examine some of the truths behind your credit rating, including what it means, why it’s important and what you can do to help improve it.
A credit score is a three-digit number assigned to you by the credit bureaus, which include Equifax and TransUnion. Credit bureaus use a mathematical formula to determine your score, taking into account all aspects of your credit report. Just like your grades in school, the higher your credit score, the better it is. A higher score increases your chances of getting approved for a loan and securing a lower interest rate.
Credit scores fall between 300 (being the lowest) and 900 (being the highest). You don’t have to have a perfect credit score though. A score of at least 680 is considered good by most lenders and can help you get the lowest interest rate.
There are two national credit bureaus in Canada – Equifax Canada and TransUnion – that provide credit reporting. Each company collects and researches consumer credit information and uses this data to rate your overall ability to pay back a debt. You can order your credit score directly from either company.
However, the credit bureaus are no longer the only place where you can obtain your credit report. A growing number of Canadian companies, such as Borrowell, Credit Karma, and Mogo, now provide access to your monthly credit score. Checking your credit score online is considered a “soft inquiry” and will not adversely affect your score.
It’s important to know where you fall within Canada’s credit score range, so you’re informed about your credit profile. After you’ve received a copy of your credit score, here’s what the number means:
Now that you have a better understanding about credit scores, let’s take a look at the five key factors that impact your credit score and the weight that each one carries.
1. Your Payment History (35%)
Lenders are looking for borrowers who have a steady payment history. In fact, your payment history is the most important factor to lenders. Do you make payments on time, all the time? To be seen in a positive light by lenders, try to pay your bills on time and in full. Sometimes life happens and you can’t afford to pay the full amount. If that happens, at least make the minimum payment so that your credit account remains in good standing.
2. Your Available Credit, or Credit Utilization (30%)
The second most important factor after your payment history is your available credit. Your available credit is how much money you can borrow at any given time. You can figure out your available credit by taking your credit limit minus any balances that you’re carrying on your credit credits. Aim to use less than 35% of your available credit. If you use any more than that, it can negatively impact your credit score.
3. Your Credit History Length (15%)
Lenders also want to see that you have a long track record of using credit responsibly. They care about how long you’ve had credit accounts open. The longer you’ve had and used credit, the better. So, if you’re thinking about cutting up a credit card you haven’t used for a while, you might think twice, since it could actually lower your credit score. (Just be sure to use it every once in a while to avoid those pesky inactivity charges.)
4. Number of Credit Inquiries (10%)
Credit inquiries are made when lenders submit a request to obtain information on your credit. There are two kinds of credit inquiries: soft hits and hard hits. Soft hits, such as requesting your own credit report, don’t count towards your credit score, while hard hits, such as applying for a credit card or mortgage, do. Hard inquiries from creditors can negatively impact your credit score, particularly if your credit profile has received a lot of them within a short period of time. This leads lenders to believe you are in financial trouble and “credit shopping” to find a loan. Try to limit your number of credit applications, otherwise it could lower your credit score.
5. Credit Types or Variety (10%)
There are actually two types of credit products: Revolving (marked as R on your credit report), which is a different amount each month, and Installment (marked as I on your credit report), which is a regular set payment. Lenders prefer a mix of revolving and installment credit on your credit report because the two different types of credit show different behaviour. A positive payment history on an Installment product, like the Climb Accelerator Plan, shows you can use credit consistently. A positive history on a Revolving product, like a secured credit card, shows you can use credit responsibly. If you just have one type of credit, it can actually limit your score from reaching its highest potential.
Your credit score is recalculated on an ongoing basis. Normally your credit score is updated about once per month. But it can also happen anytime lenders report information to the credit bureaus, such as new or cancelled credit accounts, payments being made or missed or if a past collection has fallen off.
Your credit score and underlying credit history are among the most vital parts of your financial life. Your credit score will follow you for many years, playing a huge role in many major financial decisions throughout your life.
Most people think that a credit score only really matters when it comes to applying for a loan, mortgage or credit card. Indeed, it can make all the difference in the amount of interest you’ll end up paying for the loan, or if will even get approved for the loan in the first place. But these days your credit score goes far beyond that. It can impact everything from the availability and cost of insurance, to job opportunities.
For instance:
If you want to improve or rebuild your credit score, there are several options available to you. For instance, Climb’s Accelerator Plan is ideal for individuals who want a low-risk way of building their credit score, while also saving for the future.
Updated: March 30, 2020
Originally published: May 21, 2019
Wouldn’t it be great if all Canadians had an excellent understanding of credit scores? Unfortunately, that isn’t the case. With financial literacy lacking in the school system, most of the knowledge we receive about credit scores is secondhand from family and friends. Sometimes that information is right, sometimes it’s not.
Let’s take a look at some of the most common Canadian credit score myths and help dispel them once and for all.
This is false in most cases. If you’re checking your own credit score or credit report using a free or paid service, then it won’t affect your credit score. However, if you’re applying for a new credit card and the bank pulls your credit report, that can drag down your credit score.
That’s because there are two main types of credit inquiries, “soft” and “hard” credit inquiries. Soft inquiries like checking your own credit report aren’t noted on your credit history and therefor don’t affect your credit score, while lenders and credit card companies do a hard inquiry, which is tracked on your credit history, to determine how much credit they can offer you.
Too many “hard” inquiries can make it look like you’re shopping around for credit – which can be a red flag for lenders.
This brings us to Myth #2…
In Canada we have two different credit bureaus: TransUnion and Equifax.
Consumers are typically listed with both, though the information can vary between the two depending on how the companies you do business with report credit and payment histories. You can get your free TransUnion credit report online here and your free Equifax credit report here. Both companies also offer credit monitoring, which can be a good investment if you’re concerned about identity theft or fraud.
Both companies also offer several different views or versions of an individual credit report to businesses. Depending which view a business is using, they may see a different score. This is true for free online credit scores as well, as Marketplace reported in October 2019.
Again, this is false in most cases. One important factor that determines your credit score is your credit utilization. That’s a fancy way of saying how much of your available credit you’re using.
A good rule of thumb is to keep your credit utilization below 35%. For example, if you had a credit card with a $10,000, you’d want to keep it below $3,500 (35 percent) at all times. When it gets above 50 percent lenders tend to get nervous that you could be running into financial difficulties.
Giving yourself some breathing room makes sense for most people, but if you’re someone who knows you’ll spend right up to your limit if it’s available, you might be better off with a lower credit limit. Just be aware it’s likely to hold back your credit score – although that’s better than having a large balance on your credit card next month!
Do you have a credit card in your wallet that you haven’t used for a while? Your first instinct may be to close it, but did you know that could actually hurt rather than help your credit score? That’s right, if you have a long history of making your payments on time and in full, by closing this credit card, your credit score is likely to take a hit.
You may be wondering why. The reason is simple. The length of credit history is another factor that comes into play with your credit score. When you close an old credit account, you’re shortening the length of your credit history, so it’s best not to do in most cases. The only time it may make sense is if you’re barely using a credit card and it comes with a hefty annual fee. Otherwise, you’re most likely better off keeping it open.
Everyone knows that having an item in collections will have a seriously negative impact on their credit report. But we recently helped a client who had an item in collections – and she didn’t even realize it.
Because the debt was with an internal collections team and hadn’t been transferred to an external agency, she didn’t realize the overdue bill was now considered as “in collections”. But that was what the credit bureau was reporting, and what was holding her back from getting more credit when she needed it.
If you want to learn more about which credit myths might be holding down your credit score, contact one of our credit consultants for a free consultation. They can review your credit report with you and help you find the right tools to grow your score.
About the Author
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.
January 21st was Blue Monday. In case you’re not familiar with the term, Blue Monday is a name given to the supposed most depressing day of the year. If the sun setting before
To coincide with Blue Monday, insolvency firm MNP released its latest poll with some eye-opening findings.
MNP’s poll found that 46 percent of Canadians are $200 or less away from financial insolvency. That’s up from 40 percent the last quarter. Furthermore, 31 percent of respondents feel that they don’t earn enough to pay the bills and meet debt obligations. That’s up seven percent from last quarter.
With the Bank of Canada raising interest rates five times since mid-2017, Canadians are feeling the pinch. No more so than those living on the financial edge. The poll found that 51 percent of Canadians are feeling financially pinched by higher interest rates. That’s up from 45 percent the previous quarter.
These are some quite startling findings. It shows that Canadians aren’t saving enough for a rainy day. Any unanticipated increase in the cost of living or interest rates could push them over the financial edge.
Canadians are a resilient bunch. Instead of filing for bankruptcy or a consumer proposal, they’ll use every tool at their proposal to pay for day to day living expenses. One of those tools is going into debt. The poll found that 45 percent of Canadians said they would need to go into debt to pay living and family expenses.
Higher living expenses aren’t the only concerns of Canadians. Further interest rate increases are a worry, too. Half of Canadians say that they would find themselves in financial trouble if interest rates keep rising. That’s up five percent from last quarter.
Higher living costs coupled with higher interest rates could put some Canadians in a real financial bind. The cost of living will most certainly keep rising. The only question is when will interest rates rise. If it ends up being sooner rather than later, it could impose a lot of financial pain on some Canadians.
If you have consumer debt, it’s important to come up with a plan of attack. As I mentioned in an earlier article, the debt avalanche and debt snowball methods can both be effective for paying down your debt. Likewise, you might want to look into getting a consolidated loan at a lower overall interest rate. Once you have your debts under control, your next focus should be building an emergency fund. Financial experts recommend saving three to six months’ living expenses in a savings account. Coming up with that much money at once can be tough, so start saving $200 per month or whatever you can afford and you’ll have a full funded emergency fund before you know it.
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.