1. Find out when your issuer reports payment history

Call your credit card issuer and ask when your balance gets reported to the credit bureaus. That day is often the closing date (or the last day of the billing cycle) on your account. Note that this is different from the “due date” on your statement.

There’s something called a “credit utilization ratio.” This is the amount of credit you’ve used compared to the amount of credit you have available. You have a ratio for your overall credit card use as well as for each credit card.

It’s best to have a ratio — overall and on individual cards — of less than 30%. But here’s an insider tip: To boost your score even quicker, keep your credit utilization ratio under 10%.

Here’s an example of how the utilization ratio is calculated:

Let’s say you have two credit cards. Card A has a $6,000 credit limit and a $2,500 balance. Card B has a $10,000 limit and you have a $1,000 balance on it.

This is your utilization ratio per card:

Card A = 42% (2,500/6,000 = .416, or 42%), which is too high.

Card B = 10% (1,000/10,000 = .100, or 10%), which is awesome.

This is your overall credit utilization ratio: 22% (3,500/16,000 = 0.218), which is very good.

But here’s the problem. Even if you pay your balance off every month (and you should), if your payment is received after the reporting date, your reported balance could be high — and that negatively impacts your score because your ratio appears inflated.

So, pay your bill just before the closing date. That way, your reported balance will be low or even zero. The FICO method will then use the lower balance to calculate your score. This lowers your utilization ratio and boosts your score.Advertisement

2. Pay down debt strategically

Okay, let’s build on what you just learned about utilization ratios.

In the above example, you have balances on more than one card. Note that Card A has a 42% ratio, which is high, and Card B has a wonderfully low 10% ratio.

Since the FICO score also looks at each card’s ratio, you can bump up your score by paying down the card with the higher balance. In the example above, pay down the balance on Card A to about $1,500 and your new ratio for Card A is 25% (1,500/6,000 = .25). Much better!

3. Pay twice a month

Let’s say you’ve had a rough couple of months with your finances. Maybe you needed to rebuild your deck (raising my hand) or get a new fridge. If you put big items on a credit card to get the rewards, it can temporarily throw your utilization ratio (and your credit score) out of whack.

You know that call you made to get the closing date? Make a payment two weeks before the closing date and then make another payment just before the closing date. This, of course, assumes you have the money to pay off your big expense by the end of the month.

By the way, don’t use a credit card for a big bill if you plan to carry a balance. The compound interest will create an ugly pile of debt pretty quickly. Credit cards should never be used as a long-term loan unless you have a card with a zero percent introductory APR on purchases. Even then, you have to be mindful of the balance on the card and make sure you can pay the bill off before the intro period ends.

4. Raise your credit limits

Now, if you tend to have problems with overspending, don’t try this.

The goal is to raise your credit limit on one or more cards so that your utilization ratio goes down. But, again, this only works out in your favor if you don’t feel compelled to use the newly available credit.

I also don’t recommend trying this if you have missed payments with the issuer or have a downward-trending score. The issuer could see your request for a credit limit increase as a sign that you’re about to have a financial crisis and need the extra credit. I’ve actually seen this result in a decrease in credit limits. So, be sure your situation looks stable before you ask for an increase.

That said, as long as you’ve been a great customer and your score is reasonably healthy, this is a good strategy to try.Advertisement

All you have to do is call your credit card company and ask for an increase to your credit limit. Have an amount in mind before you call. Make that amount a little higher than what you want in case they feel the need to negotiate.

Remember the example in #1? Card A has a $6,000 limit and you have a $2,500 balance on it. That’s a 42% utilization ratio (2,500/6,000 = .416, or 42%).

If your limit goes up to $8,500, then your new ratio is a more pleasing 29% (2,500/8,500 = .294, or 29%). The higher the limit, the lower your ratio will be and this helps your score.

5. Mix it up

A few years back, I realized I didn’t have much of a mix of credit. I have credit cards with low utilization ratios and a mortgage, but I hadn’t paid off an installment loan for a couple of decades.

I wanted to raise my score a nudge, so I decided to get a car loan at a very low rate. I spent a year paying it off just to get a mix in my credit. At first, my score went down a little, but after about six months, my score started increasing. Your credit mix is only 10% of your FICO score, but sometimes that little bit can bump you up from good credit to excellent credit.

Now, I wasn’t planning on applying for credit within the next six months, so my approach was fine. But if you’re refinancing your mortgage (or planning similarly something big) and you want a quick boost, don’t use this strategy. This is a good one for a long-term approach.

It seems too good to be true: Credit Karma will provide you with your credit score absolutely free. All you have to do is sign up at creditkarma.com, and you can see your credit score immediately. Still, everybody has heard the cliché, “You get what you pay for.” Is a free credit score really worth giving up your personal information, especially in an era when hackers are alarmingly successful at getting their hands on that personal data? Does the score hold up against what creditors would use to judge your credit worthiness? Here’s a look at what Credit Karma provides and whether it is worth using its credit score service. 

The Credit Karma Model

Credit Karma, according to its website, believes that you have a fundamental right to know and view your credit score. Armed with this knowledge, you’re more likely to pay your bills on time and avoid going into collections for debt, and you might waste fewer resources of the companies with whom you do business. In other words, if you know your score, you’re better off and so are those companies because they don’t have to spend money and time trying to collect what you owe them. Everybody wins!

However, it’s not entirely an altruistic effort. Credit Karma is a for-profit business. It is offering you something for free, but it is making money elsewhere.

The company’s revenue model for customers, posted online, reads: “When you access the free credit score, Credit Karma will show personalized offers to you based on your credit profile. These offers are from advertisers who share our vision of consumer empowerment. If you wish to take advantage of our offers, it is up to you. Credit Karma tries to give the power and the choice back to the consumer.”

Credit Karma makes its money in two ways. First, along with your credit score, it places advertisements on the page and hopes that you will respond to those ads.Second, because Credit Karma is pulling your credit score, its system knows a lot about you, and it can carefully tailor ads to your spending habits. More targeted ads are better for advertisers since they don’t waste money putting ads in front of people who would never use their services and usually allow the advertising company to charge more per ad. With more than 40 million active users, Credit Karma has a healthy revenue model.

In sum, Credit Karma makes money by giving you a free score in exchange for learning more about you and charging advertisers to put ads in front of you. 

Is Your Credit Score Accurate?

Now that Credit Karma’s motivation for offering free credit scores is clear, it’s possible to judge the quality of the scores. If its business model relies on you returning to the site often, offering you an accurate, legitimate score is obviously good business for them.

Nonetheless, we asked Credit Karma, “With all of the different scores out there, why should consumers trust that Credit Karma is providing a score that can be relied upon as an accurate representation of their creditworthiness?”

“The scores and credit report information on Credit Karma come from TransUnion and Equifax, two of the three major credit bureaus,” said Bethy Hardeman, chief consumer advocate at Credit Karma. “We provide VantageScore 3.0 credit scores independently from both credit bureaus. Credit Karma chose VantageScore 3.0 because it’s a collaboration among all three major credit bureaus and is a transparent scoring model, which can help consumers better understand changes to their credit score. In 2014, over 2,000 lenders, including six of the ten largest banks, used nearly one billion Vantage Score credit scores to judge consumers’ creditworthiness.”

Credit scoring is used by lenders, insurers, landlords, employers, and utility companies to evaluate your credit behaviour and assess your creditworthiness.

1. Applying for a loan. Your credit score will be a big factor into the decision of whether you are approved or denied your application for more credit. Your credit score will also affect the interest rate and credit limit offered to you by the new credit grantor – the lower your credit score, the higher the interest rate will be and the lower the credit limit offered  – the reason for this is you are considered more of a credit risk.

2. Applying for a job. A potential employer may ask your permission to check your credit file and based on what they read, they may decide not to hire you due to your poor credit history. Yes, having bad credit could cost you a job!

3. Renting a vehicle. When you sign an application to rent a car, the rental company can check your credit history to determine what their risk may be when they loan you their property. So although you are not applying for credit, the application documents you sign provide your written permission to access your credit information.

4. The same is true when applying for rental housing – the landlord may assess your tenant worthiness and their risk by factoring in your credit rating and score, and they could pass you over for someone with a better credit rating.

What information is used to calculate my credit score, and what factors will lower my score?

If you have tried looking on the consumer reporting agencies’ (CRAs, also know as Credit Bureaus) websites, you have seen they provide VERY little information as to how your credit score is calculated. They believe this information is proprietary and therefore their “secret”. They do, however, provide a list of the main factors which affect your credit score:

1. Payment History
Equifax says: “Pay all of your bills on time. Paying late, or having your account sent to a collection agency has a negative impact on your credit score.”
TransUnion says: “A good record of on-time payments will help boost your credit score.”

2. Delinquencies
Equifax lists: “Serious delinquency; Serious delinquency, and public record or collection field; Time since delinquency is too recent or unknown; Level of delinquency on accounts is too high; Number of accounts with delinquency is too high”
TransUnion lists: “Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections”

3. Balance-to-Limit Ratio
Equifax says: “Try not to run your balances up to your credit limit. Keeping your account balances below 75% of your available credit may also help your score.”
TransUnion says: “Balances above 50 percent of your credit limits will harm your credit. Aim for balances under 30 percent.”

Ok, so avoid maxing out your credit – because if you don’t really need more credit you’ll be able to get it, and if you do really need it then you are more of a risk.(Funny how that works)

For consumers with no record of credit accounts, there’s a Catch-22: They don’t have a FICO score because they don’t have a credit history – and they may have trouble building a credit history without a FICO score. Consumers who recently experienced bankruptcy or other damaging event could likewise find their lowered credit scores make it difficult to open new accounts in order to rebuild their credit history.

So, what should they do? If you’re new to credit, try asking a bank with which you have a checking or savings account for a credit card. Or try to open a retail or gas card, which often come with low credit limits, but are often easier to qualify for.

“If you already have a checking or savings account, your bank or credit union may be more likely than others to approve you for a card with a small credit limit,” Griffin said.

Another option is a secured credit card, which requires a deposit as collateral to secure the card’s line of credit. Secured cards, because they require you to deposit money, are easier to obtain than a regular unsecured credit card. Consumers need to check that the secured card’s issuer reports account activity to the three major credit bureaus (Experian, Equifax and TransUnion) that maintain credit reports.

“Using a secured card is a low-risk way to build credit,” said Heather Battison, vice president at TransUnion. “With a secured card, consumers can use credit for small purchases like groceries, pay the balance in full each month and establish a history of responsible borrowing.”

Some secured cards enable the borrower to upgrade to a standard unsecured account after a set length of time (such as 12 to 18 months) of responsible borrowing, so compare features on your secured card to see if that’s a possibility.

You can also ask a family member or close friend who has a credit card to add you as an authorized user on his account. As an authorized user, the account’s history will be added to your credit report. Just be sure your friend or relative’s account is in good standing, with no missed payments and a low balance relative to its credit limit.

To close or not to close?

Borrowers who already have loans, meanwhile, should take their length of credit history into account before closing an existing credit account. That’s because, as discussed earlier, closed accounts will eventually fall off their credit reports.

Once those accounts are removed from your credit reports, they will no longer be included in the calculation of your FICO score, since the score is calculated as a snapshot of your reports at a specific time. That means that closing an account can dramatically shorten your credit history, depending on how long you’ve had your individual cards and if you don’t take out any new credit cards or loans in the near term.

While it’s true that keeping your card accounts open can help your score, there are cases in which canceling a card is the better option. If the card tempts you to overspend or it has a high annual fee you can no longer afford, considering canceling it, even if you stand to lose a few credit score points. After all, missing a payment or maxing out a card will cause more damage than shortening your credit history.

Closing an account can have a more immediate impact on your utilization ratio – the amount you owe compared to your credit limit – which could also hurt your FICO score.

For instance, if you have one card with a $10,000 credit limit and a zero balance, and another card with a $5,000 limit and a $4,000 balance, your overall utilization ratio is 27 percent. But if you close the $10,000 limit card — perhaps because it’s not being used – your credit utilization rate jumps to 80 percent. Such a dramatic change in your debt-to-limit ratio would almost certainly hurt your score.

If you do keep all of your accounts open, be sure to pay them on time and keep your balances as low as possible. Your credit will grow old gracefully, and your score will stand the test of time. Now that you are up to speed on credit history, here is a great place to start researching for a credit card.

Do you remember applying for your first credit card? Most people get their first taste through student credit cards, which typically offer lower limits and are easier to qualify for. But graduating to one of the best rewards credit cards isn’t as easy as deciding which one is right for you—lenders make you meet their requirements, not the other way around.

For the best chance at being approved for a new credit card, you need to know what lenders look for and how to make yourself an attractive borrower. Before applying, here’s what you can do to improve your chances.

Know your credit score

Knowing your credit score is the easiest and most important way to improve your chances of getting approved for a credit card. Your credit score is a number between 300 and 900 and is used by lenders to assess how creditworthy you are. There are two major credit reporting agencies in Canada: Equifax and TransUnion. You can pay to learn your credit score from one of these companies. You can find out your credit score for free here.

The best credit cards require a good or excellent credit score. If yours is less than stellar, now’s the time to work on improving it. You can quickly improve your credit score by making sure to pay all of your bills on time, by paying down the balances on your existing credit cards, and reducing the credit limits on any cards you don’t use.

Reduce your debt

When you apply for a credit card, the lender will look at a number factors. One of those is your credit utilization ratio, which is the ratio of debt you carry relative to your credit limits. The less debt you carry on your credit cards and lines of credit, the more attractive you’ll be to lenders. If you have several credit cards that are completely maxed out and you apply for a new card, this will be a red flag. It’s best to keep your credit utilization ratio to 30% or less to avoid any questions about your debt levels. That means if you have a credit card with a $10,000 limit, you shouldn’t regularly carry a balance higher than $3,000.

Seek out the best offer

Applying for multiple credit cards at the same time can also be a red flag to a lender because it may indicate you’re having money problems. For this reason, it’s best to do your due diligence before submitting your application. Compare the best credit cards and find one that fits your profile and unique spending habits. Then apply for one and only one.

Report your income accurately

Most credit cards have a minimum annual income requirement for individuals or households. For individuals, it can be as low as $15,000 a year to as much as $80,000 per year. While it might be tempting to stretch the truth on how much you earn to apply for a better card—avoid this temptation because some lenders require income verification in the form of a pay stub or T4. If you have income outside of your full-time job, you can include it and you may need your tax return to prove it.

Be realistic

It can take years to build up your credit profile to the point where you can apply for (and be approved) for the top-tier credit cards. Everyone needs to start somewhere and the easiest way to improve your credit-worthiness is to get started. If you have poor credit (or no credit), apply for a secured credit card and pay it off every single month and be sure to never carry a balance. If you can’t make the payments, stop using the credit card immediately. Make all of your bill payments on time and pay off your debts. Do a side hustle to improve your income to meet those minimum income cut-offs and eventually you’ll able to apply and secure approval for the best credit cards on the market.

Well, you won’t be the first. In millions of files and hundreds of millions of reported entries, there are bound to be mistakes. Some are minor data-entry errors. Others are damaging whoppers. For example, we’ve heard of instances where negative credit files from one person got posted to the file of someone who had a similar name (the “close enough” school of credit reporting).

Some credit bureau watchers estimate that there are errors in 10 to 33 per cent of credit files. Some of those mistakes can be serious enough to hurt your credit status. That hit to your credit score can result in a denied loan or a higher interest rate. Across Canada, provincial consumer agencies collectively get hundreds of complaints annually about credit bureaus.

If you find something in your file that you dispute, you can write the credit agency in question and tell them you think there’s an error. The credit reporting agency usually sends along the form you need when it sends you the credit report. Use it to spell out the details of any information you dispute. The dispute forms are online, too.

Be sure to send along any documents that support your version of the matter in dispute. The reporting agency then contacts whoever submitted the information you’re disputing.

If the file is changed, you will be sent a copy of your new report and any company that’s requested your credit file in the previous two months will also be sent the corrected file.

If the item is not changed to your satisfaction, you have the right to add a brief statement to your credit file with your side of the story. You can also ask to have your credit file, along with your comment on the disputed entry, sent to any company that has requested your credit report in the previous two months.

You can also file a complaint with your provincial consumer agency.  

What are credit monitoring services?

If you spot entries in your credit report that don’t seem to relate to you (such as charge accounts you never opened or bad debt notations you never got), you may be a victim of the rapidly-growing crime of identity theft. You should notify the credit reporting company immediately.

There are companies that will take the effort of checking your credit report off your hands — for a price. The credit reporting bureaus are, not surprisingly, very active in this area. At TransUnion, their credit monitoring service costs $14.95 a month and includes unlimited access to your credit profile and credit score. At Equifax, credit monitoring and identity theft protection starts at $16.95 a month.

There are several other companies offering similar services for similar prices. They usually include features like e-mail alerts when there’s a change to your credit report.

It’s a personal decision whether you feel these services are worth the money. The bottom line is you can always check your credit report for free by mail. Or, you can pay to get it online whenever you want. People who have been the victims of identity theft or people who are worried that they may be susceptible to ID theft may consider the expense worthwhile.

Should I pay to use a credit repair service?

Industry Canada says there’s no point in hiring a company that claims it can improve your credit rating. Firms that say they can “fix” a bad credit report are often little more than fly-by-night operations designed to relieve you of hundreds of dollars in return for nothing.

There’s no way a credit repair clinic can change accurate information that doesn’t reflect well on you. The only thing they can fix on your behalf is an inaccuracy in your credit file. And you can do that yourself free of charge.

Everyone who’s ever borrowed money to buy a car or a house or applied for a credit card or any other personal loan has a credit file.

Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million of us have credit reports. And most of us have no idea what’s in them.

Are there mistakes? Have you been denied credit and don’t know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions. And it’s free for the asking.

So what’s in a credit report?

You may be surprised by the amount of personal financial data in your credit report. It contains information about every loan you’ve taken out in the last six years — whether you regularly pay on time, how much you owe, what your credit limit is on each account and a list of authorized credit grantors who have accessed your file.

Each of the accounts includes a notation that includes a letter and a number. The letter “R” refers to a revolving debt, while the letter “I” stands for an instalment account. The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy.) For a revolving account, an R1 rating is the notation to have. That means you pay your bills within 30 days, or “as agreed.”

Any company that’s thinking of granting you credit or providing you with a service that involves you receiving something before you pay for it (like phone service or a rental apartment) can get a copy of your credit report. Needless to say, they want to see lots of “Paid as agreed” notations in your file. And your credit report has a long history. Credit information (good and bad) remains on file for at least six years.

What’s a credit score? And why is it so important?

A credit rating or score (also called a Beacon or a FICO score) is not part of a regular credit report. Basically, it’s a mathematical formula that translates the data in the credit report into a three-digit number that lenders use to make credit decisions. 

The numbers go from 300 to 900. The higher the number, the better. For example, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. That means that anyone with this score is very likely to get that loan or mortgage they’ve applied for.

What are the cutoff points? TransUnion says someone with a credit score below 650 may have trouble receiving new credit. Some mortgage lenders will want to see a minimum score of 680 to get the best interest rate.    

The exact formula bureaus use to calculate credit scores is secret. Paying bills on time is clearly the key factor. But because lenders don’t make any money off you if you pay your bills in full each month, people who carry a balance month-to-month (but who pay their minimum monthly balances on time) can be given a higher score than people who pay their amount due in full. 

This isn’t too surprising when you realize that credit bureaus are primarily funded by banks, lenders, and businesses, not by consumers.

How can I get a copy of my credit report and credit score?

You can ask for a free copy of your credit file by mail. There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You should check with both bureaus.

Complete details on how to order credit reports are available online. Basically, you have to send in photocopies of two pieces of identification, along with some basic background information. The reports will come back in two to three weeks.

The “free-report-by-mail” links are not prominently displayed — the credit bureaus are anxious to sell you instant access to your report and credit score online.

For TransUnion, the instructions to get a free credit report by mail are available here. For Equifax, the instructions are here. 

If you can’t wait for a free report by mail, you can always get an instant credit report online. TransUnion charges $14.95. Equifax’s rate is $15.50.

To get your all-important credit score, you’ll have to spend a bit more. Both Equifax and TransUnion offer consumers real-time online access to their credit score (your credit report is also included). Equifax charges $23.95, while TransUnion’s fee is $22.90. There is no free service to access your credit score.

You can always try asking the lender you’re trying to do business with, but they’re not supposed to give credit score information to you. 

In Canada, credit scores range from 300 (just getting started) up to 900 points, which is the best score. According to TransUnion, 650 is the magic middle number – a score above 650 will likely qualify you for a standard loan while a score under 650 will likely bring difficulty in receiving new credit.

Lenders who pull your credit bureau file may see a slightly different number than you see when you pull your own file.  This is due to the fact that each creditor applies a specific set of risk rules, giving and taking points for different purposes or preferences. This proprietary method of scoring will make a difference in the final calculation. The score you pull for yourself is calculated using an algorithm created for consumers that approximates these different formulas, and should still be in the same numerical range as the lenders’ scores.

Order your credit report from both credit reporting agencies in Canada – Equifax and TransUnion – at least once per year for free (when requested by mail, fax, telephone, or in person), and you can pay to see your credit score if you choose.

How can a low credit rating affect my life?

Credit scoring is used by lenders, insurers, landlords, employers, and utility companies to evaluate your credit behaviour and assess your creditworthiness.

1. Applying for a loan. Your credit score will be a big factor into the decision of whether you are approved or denied your application for more credit. Your credit score will also affect the interest rate and credit limit offered to you by the new credit grantor – the lower your credit score, the higher the interest rate will be and the lower the credit limit offered  – the reason for this is you are considered more of a credit risk.

2. Applying for a job. A potential employer may ask your permission to check your credit file and based on what they read, they may decide not to hire you due to your poor credit history. Yes, having bad credit could cost you a job!

3. Renting a vehicle. When you sign an application to rent a car, the rental company can check your credit history to determine what their risk may be when they loan you their property. So although you are not applying for credit, the application documents you sign provide your written permission to access your credit information.

4. The same is true when applying for rental housing – the landlord may assess your tenant worthiness and their risk by factoring in your credit rating and score, and they could pass you over for someone with a better credit rating.

What information is used to calculate my credit score, and what factors will lower my score?

If you have tried looking on the consumer reporting agencies’ (CRAs, also know as Credit Bureaus) websites, you have seen they provide VERY little information as to how your credit score is calculated. They believe this information is proprietary and therefore their “secret”. They do, however, provide a list of the main factors which affect your credit score:

1. Payment History
Equifax says: “Pay all of your bills on time. Paying late, or having your account sent to a collection agency has a negative impact on your credit score.”
TransUnion says: “A good record of on-time payments will help boost your credit score.”

2. Delinquencies
Equifax lists: “Serious delinquency; Serious delinquency, and public record or collection field; Time since delinquency is too recent or unknown; Level of delinquency on accounts is too high; Number of accounts with delinquency is too high”
TransUnion lists: “Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections”

3. Balance-to-Limit Ratio
Equifax says: “Try not to run your balances up to your credit limit. Keeping your account balances below 75% of your available credit may also help your score.”
TransUnion says: “Balances above 50 percent of your credit limits will harm your credit. Aim for balances under 30 percent.”

Ok, so avoid maxing out your credit – because if you don’t really need more credit you’ll be able to get it, and if you do really need it then you are more of a risk.(Funny how that works)

How do credit scores work in Canada?

In Canada, credit scores range from 900 points (the highest score) down to 300 points. According to TransUnion, a score above 650 will likely qualify you for a standard loan, while a score under 650 will likely bring difficulty in receiving new credit.

What is a good credit score in Canada?

A credit score of 680 or above is generally considered good. 780 or above is considered to be excellent, while 900 is perfect. Most credit scores fall between 620 and 679. Higher scores indicate better credit decisions and can make lenders more confident that you will repay your future debts as agreed.

How to check your credit report in Canada

There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You can get a free copy of your credit report by mail in two to three weeks once you have provided your identification and some basic information. Be sure to check with both bureaus.
If you need a credit report sooner you can get one online from both bureaus for a fee of less than $20. Keep in mind that your number might differ slightly between companies because of their unique algorithms.

What your credit score means

Now that you have your credit report, you need to decipher your score and figure out where you land on the creditworthiness scale. We’ll start at the top of the range and work our way down:

780+: Excellent credit. You can access the best interest rates on the market and will typically be approved for a loan.
779-720: Very good credit. Your credit is near perfect and you will enjoy very good interest rates.
719-680: Good credit. You will have little to no trouble getting approved for financing.
679-620: Average credit. The majority of borrowers fall in this range in Canada. You will have slightly higher interest rates than someone with a higher number.
619-580: Poor credit. If you land in this range, you’re what lenders deem “high risk.” You might have a hard time getting a loan and will have high interest rates.
579-500: Very poor credit. You will rarely be approved for financing,
300-500: Terrible credit. If you have a score of less than 500 you have bad credit and it will be very difficult to get approved for any kind of loan. You should work on improving your credit.
That range probably looks intimidating, especially if you fall on the low end of the scale. But, the good news is that it’s possible to improve your credit score with a little work and some good advice.

How is credit score calculated in Canada?

Your credit score is calculated through six main categories and is representative of how well you manage your credit responsibilities.

FACTORS AFFECTING CREDIT SCORE IN CANADA

There are six main factors that affect the calculation of your credit score. These are the areas that you should focus on if you’re interested in improving your credit score.

1. Payment History: This reflects how frequently you pay your debts or bills on time and it is the biggest thing that affects your credit score. If you want to improve your number, your main priority should be paying your bills on time.
2. Used Credit vs. Available Credit: This is the second largest contributor to your score and it refers to the amount you owe compared to your credit limit. It’s a good idea to avoid running your balance up to your limit, as that can harm your score.
3. Credit History: Because good credit is built over time, how long you’ve had credit plays a role in your score. Lenders want to know that you can handle credit accounts over a period of time.
   
4. Diversity: Lenders also want to know that your can handle a mix of different kinds of credit at once, such as credit cards, loans and mortgages. The more diverse your credit, the higher your score.
5. Public Records: If you’ve claimed bankruptcy in the past or have had prior collection issues, these will be factored into your score.
6. Inquiries: Your credit score takes a small and temporary hit each time a lender accesses your file; however, your score will drop if you apply for a bunch of new credit in a short period of time. This does not apply to pre-approvals or personal credit report requests.

How to improve your credit score

With so many different things affecting your credit score, tackling your credit situation might seem like a daunting task. The good news is that your low score doesn’t have to be looming over you forever because you have the power to improve your credit score. At Credit Solutions, we will walk you through your credit history and show you how you can start improving your credit score. Get in touch to set up a meeting or click here to learn more about our bad credit car loans.

Credit scores are just one thing we can’t seem to get right. In fact, a recent survey found that many of us are still confused about them. This confusion can have a significant impact on our financial future. A good credit score can save you a lot of money in the long run, but a poor score will cost you a pretty penny.

We can’t bust all of the myths at once, but we can get a few of the most-often cited ones out of the way to start.

Myth #1: You have just one credit score.

This myth is one of the most difficult to bust. The reality is that you have dozens — possibly hundreds — of credit scores. In the popular FICO model alone, there are 49 different scores. And the score that you pay for usually isn’t the one that your lender sees.

Credit scores can vary based on what type of inquiry is being made (auto lender vs. mortgage lender), what credit bureau data is being used (Equifax, Experian or TransUnion), and which model is being used (FICO, VantageScore, or some other model).

The good news is that your various credit scores are highly correlated, according to a recent report released by the Consumer Financial Protection Bureau (CFPB). That means if your credit is rated “good” in one model, it should be “good” in all models.

Myth #2: Checking your own credit hurts your score.

When you request copies of your credit report from AnnualCreditReport.com or get your free credit score on a site like Credit Karma, a credit request is being made on your behalf. This is called a soft inquiry, and it won’t affect your credit at all. A soft inquiry is not used for making lending decisions — that kind is called a hard inquiry.

Checking your credit score and reports regularly is actually a good thing. It gives you an idea of where you stand and how your actions are affecting your credit rating. Plus, you can check your credit reports for inaccuracy and errors. So don’t be afraid to check up on your credit health often — it won’t hurt your score one bit.

Myth #3: Closing your oldest credit card will hurt your score.

It’s been a long-held belief by many that closing your oldest credit card account will somehow remove that card’s history from your credit report and shorten your overall credit age. That’s (thankfully!) not true. Accounts, whether open or closed, remain on your credit report.

Closed accounts in particular remain on your credit report and continue to age just like any other account. However, credit bureaus will remove them from your reports after ten years, so you won’t get the benefit of a long, on-time payment history of a closed account forever.

But there’s another factor that makes this myth sometimes true. If your oldest credit card account has a large limit, it could be greatly contributing to one of the most important factors of your credit score: your credit card utilization rate. This rate is your total credit card balances divided by your total credit card limits. It generally indicates how much you rely on credit. Closing an account with a high limit could inflate your credit card utilization.

Before you decide to close a credit card account, make sure your other credit card balances are low enough to compensate. But don’t stress over losing your good history on that card — it’ll take about a decade for that to happen.