A credit score is a numerical representation of a borrower's likelihood to repay a lender on time. In Canada, credit scores range from 300 to 900. A score below 600 is considered poor, while a score above 750 is regarded as excellent. A low score suggests to lenders that you may be a high-risk borrower, potentially prone to missing payments, whereas a high score signals a more reliable repayment history. Your credit score is determined by the information in your credit report, and both major credit bureaus use different algorithms to calculate it. This results in multiple credit scores for an individual. When reviewing a credit application, lenders typically use just one version of your score, and the score you see may differ from the one they access.
A credit report is a detailed document that outlines your credit history. Lenders and creditors review this report to assess your creditworthiness and determine the likelihood of you repaying borrowed money. A positive credit report increases your chances of approval. It consists of four main sections:
Personal Information: This section includes your name, address, phone number, SIN, and employment history.
Credit History: This details your loans, credit cards, lines of credit, and other forms of credit, including records of missed or on-time payments.
Inquiries: This shows who has requested permission to check your credit report.
Public Records: This section lists any bankruptcies, consumer proposals, debt settlements, or similar financial matters.
Get a free, no-obligation personal loan quote today, with rates starting as low as 9.99%!
You can apply without affecting your credit score.
Your credit can be checked by more than just lenders and creditors; there are various situations where a credit check may be necessary.
If you’re renewing a financial contract with a lender or creditor, they may perform another credit check to assess your ongoing creditworthiness.
When applying for an apartment, landlords may check your credit report as part of their approval process.
Some employers may run a credit check before offering you a job or promotion, though this practice isn’t common across all industries.
Insurance companies may check your credit to assess your risk level and the likelihood of filing a claim.
Utility and phone companies may also require a credit check before providing their services.
Building a healthy credit score may seem overwhelming, but with the right knowledge, planning, and persistence, anyone can achieve good credit.
Using a Secured Credit Card
If you have poor credit, a secured credit card might be a better alternative to a traditional credit card. A secured credit card is backed by a cash deposit, typically equal to the credit limit. After making the deposit, you can use the card just like a regular one. If the card issuer reports your payments to the credit bureaus, this could help improve your credit score over time. Keep in mind that credit profiles vary, and the impact on your score may differ for each individual. When you close your account, your deposit will be refunded.
Become an Authorized User on a Family Member’s Credit Card
One way to build your credit is by asking a family member with a good credit history to add you as an authorized user on their credit card. This allows their credit card activity, including payments, to be reflected on your credit report. However, it’s important to confirm that the credit card issuer reports this activity to Canada’s credit bureaus.
Become an Authorized User on a Family Member’s Credit Card
One way to build your credit is by asking a family member with a good credit history to add you as an authorized user on their credit card. This allows their credit card activity, including payments, to be reflected on your credit report. However, it’s important to confirm that the credit card issuer reports this activity to Canada’s credit bureaus.
Credit Building Program
If you’re struggling to access affordable credit due to past financial mistakes, a credit building program could be a helpful solution. We recommend KOHO, which offers two excellent credit building options.
KOHO’s Credit Building Program: This program provides a credit-building line of credit with a $10 monthly subscription fee. To participate, simply make on-time payments each month. These payments are reported to a credit bureau, helping to build your credit history.
KOHO’s Flexible Credit Building Program: This is a secured line of credit where users must deposit between $30 and $500 in their KOHO account as security. There’s also a $5 monthly service fee. Once activated, you can use the line of credit for purchases and repay the balance at the end of the month. These payments are reported to a credit bureau, supporting the growth of a healthy credit history.
Credit Rehab Loan
A credit rehab savings loan is a program designed to help improve your credit while also encouraging savings. Offered by community banks and credit unions, the loan works by saving a portion of your payments in a GIC, which you can access once the loan is fully paid off. Additionally, each payment you make is reported to the credit bureaus, potentially boosting your credit score.
Guarantor Loan
Having a parent or significant other act as a guarantor when applying for credit can greatly improve your chances of approval. It can also help you qualify for a lower interest rate and better loan terms, making credit more affordable.
Credit Builder Loan
If you’re working to rebuild your credit after past financial mistakes, a credit builder loan can be a useful tool. You’ll make monthly payments, which are reported to the credit bureaus and could help improve your credit score. The payments are saved in an account, and once the loan term ends, you can withdraw the funds. This allows you to build your credit while also saving money.
How to Build and Maintain Good Credit
Maintaining a good credit score is straightforward once you understand the factors that impact it. Being mindful of these factors is key to keeping your credit in strong standing.
Use Your Credit Card Responsibly and Pay on Time
One of the most important factors affecting your credit is paying your bills on time. It’s crucial not to spend more than you can afford. Budgeting and tracking your spending can help you make full, on-time payments, which can lead to an increase in your credit score.
Keep Your Credit Utilization Low
Ideally, you should aim to keep your credit utilization below 30% of your credit limit. Spending more than 30% can negatively affect your credit score, so try to maintain a low balance on your credit cards.
Pay All Your Bills on Time
It’s not just credit card issuers who report your payment history to the credit bureaus. Lenders, phone providers, and utility companies also report both on-time and missed payments. Paying all bills on time will help protect your credit score.
Keep Your Old Credit Accounts Open
Unless you have a valid reason to close a credit account, it’s best to keep it open. Closing an account can shorten your credit history, which is a factor in calculating your credit score. The longer you’ve had an account open, the more favorable it appears to creditors.
Avoid Multiple Credit Applications in a Short Time
Each hard credit inquiry can slightly lower your credit score. Applying for several credit products within a short period of time can negatively impact your score and make you seem financially desperate to lenders, reducing your chances of approval.
Monitor Your Credit Report for Errors and Fraud
Regularly check your credit report, ideally every 6 to 12 months, to catch any errors or signs of fraud that could harm your credit score. Identifying mistakes, such as accounts that don’t belong to you, or spotting fraudulent activity early can help protect your credit and prevent further damage.
Financial Habits That Could Be Ruining Your Credit
While there are many actions that can help build and maintain your credit, certain behaviors can also harm it. Here are some financial habits that could be damaging your credit:
Maxing Out Your Credit Cards
As previously mentioned, using more than 30% of your credit limit can negatively impact your credit. Maxing out your cards is even worse, as it signals to lenders that you may be overburdened with debt. This can lead to your credit applications being rejected.
Relying on Credit for Daily Expenses
While using credit for daily expenses isn't inherently bad, relying on it too often can quickly lead to problems. Frequent use increases the risk of fraud, overspending, and accumulating large balances, all of which can harm your credit score.
Cosigning for Someone Irresponsible
Cosigning for someone who is financially irresponsible can hurt your credit if they fail to make payments. If you cosign a loan or credit account, you’re equally responsible for the debt. If the other person defaults, it can negatively impact your credit.
Ignoring Past Due Bills
Ignoring overdue bills doesn’t make them disappear—it only prolongs the issue. If a company is unable to collect payment, they may send the account to collections. This can result in a collections account appearing on your credit report for up to six years, which will severely damage your credit and impact your ability to secure credit in the future.
Only Making Minimum Payments on Credit Cards
Paying only the minimum balance on your credit card doesn’t directly affect your credit score, but doing so consistently can. It increases your credit utilization ratio and prolongs your debt repayment, which can negatively impact your credit score. Additionally, paying only the minimum means you’ll pay more in interest over time.
Not Using Credit at All
Avoiding credit altogether may seem like a way to protect your score, but it can actually hurt you in the long run. Without a credit history, lenders have no way of assessing your ability to repay debt. This can affect your chances of approval for loans, apartments, or even phone services, as many providers check your credit before offering you a service.
FQA
Does applying for a loan affect your credit score?
Yes, applying for a loan can affect your credit score. Every time a lender performs a hard inquiry, it has the potential to lower your score slightly.
Why do I have more than one credit score?
In Canada, there are two major credit bureaus, each using different methods to calculate your credit score. Additionally, not all lenders report to both bureaus, meaning one bureau may have more favorable information than the other. This results in variations in your credit score across the two bureaus.
How long does information stay on your credit report?
Negative information, such as missed or late payments, typically stays on your credit report for six years. Bankruptcies remain for six to seven years (with a second bankruptcy lasting up to 14 years), and consumer proposals stay for two years after the debt is fully paid.
Credit Building FAQs
How much do you need?
100% FREE
How can I raise my credit score quickly?
There is no guaranteed way to quickly improve your credit score, as everyone’s credit profile is unique. However, two key habits that can help are consistently making on-time payments and maintaining a low credit utilization ratio.
Why a Loan with us?
Exclusive Offers
FREE Service
Expert tips and Experience
Apply Once and Get Many Offers
Save Time and Money
Loans Personalized
Find the best rates for your loans today.
CONTACT US VIA EMAIL
contact@ibeloan.com
© 2024 All Rights Reserved. Design for ibeloan.com in Canada Regulations.