Whats A Good Credit Score
So, what is a good credit score, anyway? Lets start at the beginning.
According to the Government of Canada, a credit score is a 3-digit number that represents how likely a credit bureau thinks you are to pay your bills on time.1 It can be an important part of building your financial confidence and security.1 For example, building a good credit score could help you get approved for loans and larger purchases, like a home.1 You may also be able to access more competitive interest rates.1
There are two main credit bureaus in Canada: Equifax and TransUnion.1 These are private companies that keep track of how you use your credit.1 They assess public records and information from lenders like banks, collection agencies and credit card issuers to determine your credit score.1
Be Vigilant About Errors
Unfortunately, mistakes happen. Inaccuracies on your credit report can lower your score and lead to you being denied credit or prime interest rates. Order your credit file from each bureau at least once a year, and track your report for errors or signs of identity theft. If you find a mistake on your report, notify the credit bureau as soon as possible. The bureau will contact the lender in question to verify the information. If its incorrect or incomplete, the item will be removed from your file. Include any paperwork you may have to help your case.
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- Do you believe you were born with money management talent?
- Did you have parents that taught you how to manage your money well when you were growing up?
- Did you have teachers that taught you about money while in school?
If youre like most of us, the answer is NO to all three questions. However, the amazing thing about money management is that its a skill, and if its a skill, it can be learned.
The Credit Counselling Society is committed to providing Canadians with financial literacy education and skills in the following ways:
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S To Improve Your Credit Score Right Now
Leslie CookSamantha Sharf12 min read
A good credit score can improve your financial wellbeing in good times and bad. However, solid credit is especially important at times when the economy is shaky, such as now.
Inflation continues to be a concern and fears of a recession persist. To try to bring prices down, the Federal Reserve has increased short-term interest rates five-times this year. But the Fed’s policy has also raised the cost of all kinds of debt from personal loans and to student loans and mortgages.
Having a high credit score can help you qualify for a lower interest rate and counter-act some of that rise. How big a difference can a higher score make?
A borrower with 620 credit a “fair” score would on average qualify for a rate of about 8.32% on a 30-year fixed-rate mortgage. The monthly payment on a $400,000 home at that rate would be $3,025.
A borrower with a stronger 740, on the other hand, would qualify for an average rate of 7.233% and would pay $301 less per month.
If your credit score can use some improvement, the sooner you take steps to bring it up the better. It takes time and patience to raise your credit score. The following steps can point you in the right direction.
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Your credit scores affect whether you can get approved for a loan, a credit card, or even a new job. Usually it can take weeks or months to improve your credit scores, but there’s an innovative new feature that could help you raise your FICO® Scores4 instantly.
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How To Build A Credit History
For anyone who has had credit problems in the recent past, here’s how you can start taking steps to rebuild your credit.
- Make payments on past-due accounts that havent gone into collections first. Getting current on these is more important, as you want to avoid having your accounts sent to collections, if and when possible. Accounts already in collections will remain on your credit report for 6 years regardless of repayment.
- Contact those accounts in collections to see if it’s possible to start paying back the debt, but make sure you notify the creditor, as well and get proof of payment. Before contacting collection agencies, be sure you know your rights. Some collectors may demand full payment of the debt and/or threaten legal action.
- Consider applying for a secured credit card to assist you in rebuilding your credit rating. Secured credit cards are loaded with your own money, so you cant overspend. Plus, they reflect positively on your credit report.
Check Your Credit Score For Free
Knowing where you stand and watching your progress can be important. With Experian, you can check your FICO® Score for free. Your account gives you a breakdown of which factors are impacting your score the most, so you can take a focused approach to improving your score. Your credit score will also automatically be tracked and updated each month.
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Sign Up For Experian Boost
If your low score is primarily the result of being new to the credit-seeking game and you are timely with your payments for utilities and your cell phone, ask the lender to pull a report from Experian, using its Experian Boost plan. This hybrid model draws on what the industry calls alternative credit data non-traditional payments that provide lenders useful insight into an applicants creditworthiness.
The way forward gets a little steeper from here, so its a good idea to know what youre up against.
Your Past Credit Behavior Is Reflected In Your Credit Score
In fact, your credit score can be checked by anyone with a legitimate business need to do so. Your credit score is based on your past financial responsibilities and past payments and credit, and it provides potential lenders with a quick snapshot of your current financial state and past repayment habits.
In other words, your credit score lets lenders know quickly how much of a credit risk you are. Based on this credit score, lenders decide whether to trust you financially and give you better rates when you apply for a loan.
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Always Pay Your Bills On Time
If you could do one thing to improve your credit score, it would be to make all your payments on time. Every time.
Thirty-five percent of your FICO credit score hinges on your payment history. For someone with a high score, even one payment that is 30 days late could result in a 90 to 110-point drop, according to Equifax. And the impact is even greater if the payment is more than 30 days late.
A late or âdelinquentâ payment stays on your credit report for seven years. The impact on your overall score declines over time, but that negative mark still matters.
If you have a missed payment on your report or want to avoid putting your credit score at risk, put all recurring bills on auto-pay and set payment reminders for other accounts. This keeps a payment from slipping through the cracks.
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What Is A Credit Report
A is one big profile that contains information on your credit-related accounts and your personal information over a predetermined number of years. If you open an account for a new credit product or make a payment to an existing one, it typically gets recorded in your report. However, its important to note that not all credit accounts and transactions get recorded as some lenders and creditors do not report the data to one or both Canadian credit bureaus.
How Long Does Information Stay On Your Credit Report?
A record of most transactions , including cancelled accounts, inquiries, and other instances remains on file for a certain number of years. The exact number depends on the type of information reported. Generally, more serious instances, such as delinquencies may remain on your credit report for longer.
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Become An Authorized User On Someone Elses Account
If youre new to credit and cant qualify for your own credit card, becoming an on someone elses account can be a great way to get started. But its a double-edged sword: If the person who owns the account has healthy credit, it can help you establish a positive credit history over the long run. On the other hand, if they miss payments or carry high credit card balances, that could also reflect poorly on you. Thats why its important to pick someone you trust who has a longer credit history and higher credit scores than you do, and who overall has a positive credit history.
Request Credit Limit Increases
Periodically, request an increase to your credit limit. Each credit card company will have a different process but its typically very easy and very quick. Most credit cards will let you do this online.
Two things to keep in mind when doing this. First, dont request an increase on a new card. Many companies will not increase your limit if its new.
Next, when you request an increase, you want to make sure you do it in a way that doesnt require a hard inquiry on your credit report. If you request a relatively small increase, the company will usually approve it automatically.
If you ever request an increase and the company wants to ask for more information, decline the request. You dont need the increase and so it doesnt make sense to take the credit score decrease from a hard inquiry.
You can usually request an increase every six months.
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Why Does A Good Credit Score Matter
What does a high credit score get you? The simplest answer is better loan terms and easier approval. A good or excellent credit score will save most people hundreds of thousands of dollars over the course of their lifetime. Someone with excellent credit gets better rates on mortgages, auto loans, and everything that involves financing.
Individuals with better credit ratings are considered lower-risk borrowers, with more banks competing for their business and offering better rates, fees, and perks. Conversely, those with poor credit ratings are considered higher-risk borrowers, with fewer lenders competing for them and more businesses getting away with high annual percentage rates because of it.
Additionally, a poor credit score can affect your ability to find rental housing, rent a car, and even get life insurance because your credit score affects your insurance score.
FICO credit scores place the most emphasis on payment history and even one late payment could cost you substantial points.
How Long Does It Take To Improve My Credit
In general, consumers with lower credit scores can see their scores improve in as little as 30 days. Individuals with lower credit scores are in a better position to quickly improve their scores compared to those who already have built a strong credit history. The quickest way to improve your credit score is by paying your bills on time and using less than your available credit limit. These actions, when done consistently, may improve your score by as many as 100 points.
Your payment behaviour is reported to credit bureaus every 30 days and gets added to your credit report. Each time your credit report updates monthly, your credit score has a chance of improving. By taking consistent steps towards making timely payments and staying within your credit budget, you will be able to, slowly but surely, improve your credit score.
If you have negative information on your credit report, or if you are trying to dispute your credit report, it can take three to six months to fix your bad credit score.
If you have a low credit score, there are financial programs to help you build your credit history. These programs allow you to create a secured account, make payments towards the account, and have those payments reported to Canada’s credit bureaus and added to your credit report. This type of program can help you if your credit score is low, if you haven’t used credit products to build up your score, or or if you’re new to Canada and don’t have a credit score at all.
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How Credit Scores Are Calculated
Credit scores are determined by computer algorithms called scoring models that analyze one of your credit reports from Experian, TransUnion or Equifax. Scoring models may use different factors, or the same factors weighted differently, to determine a particular score. However, consumer credit scores generally share a few similarities:
- Scores are calculated based on the information in one of your credit reports.
- Scoring models try to predict the likelihood that a borrower will be 90 days late on a bill in the next 24 months.
- A higher score indicates a person is less likely to fall behind on a bill, and vice versa.
The vast majority of lenders use credit scores calculated by FICO and VantageScore® scoring models. The most recent versions of their generic credit scores use a score range of 300 to 850and a score in the mid-600s or higher is often considered a good credit score. .
Considering how different credit scores use the same underlying information to try and predict the same outcome, it might not be surprising that the steps you take to try to improve one score can help increase all your credit scores.
For example, making on-time payments can help all your credit scores, while missing a payment will likely hurt all your scores. There are several factors that can affect your credit scores. Here, we’ll focus on the actions you can take to help improve your credit scores.
Apply For Loans Within A Short Time Period
Lots of hard inquiries in a short time could be an indication to lenders that you’re searching for lines of credit you won’t be able to pay. Smart borrowers, though, will apply for a few loans of the same typesuch as a mortgage, car or personal loanto compare rates. For that reason, credit scorers treat multiple hard inquiries of the same loan type made around the same time as one, reducing the negative effects on your credit score. So try to submit applications within a short time frame, ideally two weeks. Keep in mind, though, that the scoring models don’t offer this same allowance for credit card applications all of these will count individually regardless of when you submit them.
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Reduce Your Credit Utilization Ratio
Several factors determine your credit score. Your credit utilization ratio is an influential metric because it is part of a factor that makes up 30% of your score. Credit utilization is simply how much credit you are using divided by the total amount of credit you have access to.
If you charged $10,000 to your credit cards and your total credit limit is $50,000, your utilization is 20%. Credit bureaus use your statement balance in this calculation, so you have utilization even if you pay off your balances in full each month.