There are ways to improve and even rebuild your credit score.
We all have a credit score – a number between 300 and 900 used by potential lenders, employers, landlords, and in some provinces insurance companies – to help judge our financial reliability. Yet, few Canadians know their credit number, or even understand how this rating is created and how their actions can change the score.
Unless you live in a mortgage-free cave with no Internet, two companies – Equifax Canada and TransUnion Canada – are tracking your every credit movement. Banks, utilities, former landlords and anyone else who issues credit and loans feed these two agencies the information that forms your credit history.
You typically need to provide consent for someone to see your report – check the small print in that lease application.
A good credit rating will not only help you secure loans, it will also help lower the interest rates you’re charged. There are many ways to improve and even rebuild your credit score.
They know what about me?
Canadians should regularly contact both Equifax and TransUnion to get a copy of their credit report for free. The agencies may charge fees for expedited service and to get your actual score. Mistakes happen so this is the time to fix them. Plus, in the age of identity theft, credit reports will show you if anyone has applied for a loan under your name. If you find an error on your report, you can request a correction from the reporting agency and, if needed, from the lender directly. If you are not satisfied, you are entitled to add a brief “consumer statement” to offer your side of a story.
The report includes basic personal information, including date of birth, current and former addresses, social insurance number, driver’s licence number and current and past employers. The credit history information lists your loans, bank accounts, credit cards and any other form of credit, including telecom bills. Late payments, liens, bankruptcy judgments, debt sent to collection agencies and repossessions are all included.
Where does it all begin?
A credit card is usually the first step in a credit history. Student loans and mobile phone plans are also tracked. Just like posting an ill-advised YouTube video, missing payments on that first credit card can haunt people for years. Credit issuers take many other factors into consideration. However, having no credit record could raise a warning flag in some instances.
Tips to score well
- Pay your bills on time, ideally in full but always the minimum.
- If you cannot make a loan payment, work with the lender to find a solution.
- Don’t max out your credit. Regularly going beyond half of your credit card and personal lines of credit limits suggests you may have a spending problem.
- Avoid looking desperate – don’t apply for too many credit cards and loans. If you are shopping for a car loan or mortgage, do it all within a short period of time, so those inquiries into your credit history are lumped together.
- Read all your banking and utilities statements very carefully.
- Stability matters so keep credit accounts open – even if they’re not used much.
- When applying for a big loan or mortgage, consider decreasing the credit limits on your credit cards. A lender will consider unused credit a liability.
Rebuilding credit takes time
It can take time to turn your credit rating around, but it’s possible. Black marks take up to seven years to be removed from your credit history. Bankruptcies are also removed after seven years but judgments can be renewed for up to 10 years.
There are ways to start turning things around. For example:
- Apply for a secured credit card. Give the bank, say, $1,000 and ask them to issue you a card with a $500 or $1,000 limit.
- Ask a relative with a strong credit score to add you to their approved user list on their credit card.
- Ask a relative to co-sign for your credit card or loan.
- Close credit cards or lines of credit you’re no longer using so they’re not part of your credit history review.
The majority of Canadians have earned an excellent credit score. Understanding how this all works can serve you well when negotiating loans and can help you achieve your future goals.
1Rob Engen, “My credit score is 788: What does it mean?” The Toronto Star, Feb. 14, 2013. http://www.thestar.com/business/personal_finance/spending_saving/2013/01/21/my-credit-score-is-788--what-does-it-mean.html