Credit Score in Canada: Credit Report & Score
Your credit report is like your financial CV that provides valuable insight into your financial behavior to financial institutions like credit unions, lenders, and banks. They can learn a lot about you and your credit history by checking your credit report and see if you’re a worthy consumer of their lending services.
Credit can be one of the most effective financial tools for building your financial stability. However, it’s only a useful tool in the right hands. Unfortunately, most credit users don’t know how to manage their finances and use credit properly, which almost always leads to their financial breakdown. Here is an eye-opening fact – understanding how your credit works and how to use it properly can change your life for the better and improve the quality of your life. That’s why we have come up with this detailed guide to provide you with essential facts and figures to get on top of your credit game. Hopefully, you’ll learn how to use your credit and get the most out of it. It all comes down to using your credit in the smartest way possible, and it takes some time, effort, and knowledge to get there.
Credit In Canada 101
In this section, we will briefly explain what credit is, why and how it matters, the overall classification, types, benefits, features, cons, pros, and everything else you need to know to get on top of your credit game.
The key to understanding all there is about credit is to start from the beginning. Having a good credit score requires responsible behavior and a certain level of financial savviness. If you keep an excellent credit score, you can rest assured that there is a wide range of benefits in store for you.
So, let’s start with what credit is and how keeping an excellent credit score benefits you. When you want to take credit, you go to either a bank or a credit lender. Credit is like an agreement you make with these financial institutions.
Borrowing a credit means that you’re borrowing an amount to achieve a certain financial goal and pay for it later. People take credit to buy a house, car, home improvement projects, start a business, etc. If you don’t have money to buy something you need in the near future, one of the best ways to make it happen is by applying for credit.
What Is Credit?
The agreement you make with a credit lender allows you to use the means you don’t have and pay for them later, at the agreed terms and conditions. The arrangement also determines the way and timing of paying for your credit.
Now, the key to understanding credit in full lies in understanding your credit score. It’s pretty much what defines the quality of your life today. Your credit score is like your official record. Businesses, employers, and credit lenders can access your credit score to assess if you’re eligible for their services.
It allows them to see how responsible you are as a consumer and how well you manage your loan payments, bills, debt, etc. Based on your financial responsibility, behavior and spending habits, and your performance, you get rated by the credit bureau.
This rating affects literally every aspect of your private and professional life. Therefore, understanding all things associated with credit should be one of the essential things to worry about in your life.
Your credit score tells your new employer whether you’re trustworthy or not. If you want to establish a new relationship with a business partner, they will address your credit score to see if you’re reliable enough.
In terms of getting a loan, an excellent credit score allows you to tap into low-interest rate loans. However, if your credit score is bad, you’ll be looking at much higher rates, as well as the possibility of not getting approved for a loan at all.
How Do You Manage Your Credit?
Now, even if your credit looks really bad, it isn’t the end of the world. There is a lot you can do to make it look better. Your ability to manage your credit will determine the quality of your life. It’s absolutely possible to improve your credit, but it takes skill, patience, and a good portion of planning to get there. The following tips should help you get there.
1. Pay your bills on time!
We can’t emphasize enough how vital it is to pay your bills on time for your overall financial wellness. The best way to explain this to you is by pointing out that timely paying off makes your credit go up.
2. Check Your Debt
If you want to make your credit look good, you need to know how much you owe. It’s essential to paying off your debts so that you can finally start to build your credit. Your credit capacity depends on how much you owe.
How much you owe is the amount you’ve already spent, and it refers to any financial product you might be using at the moment.
3. Pay Attention to Your Credit History
The longer the credit history, the better. Long credit history could be an effective way to build or rebuild your score.
4. Know Your Credit
Since different types of credit are valued differently, it’s most recommended that you know the type of credit you have.
5. Know How Much Credit You Have Available
It’s absolutely paramount to know how much credit you owe and how much you have left, as this knowledge allows you to better manage what you have. Having five credit cards isn’t going to look great in your credit report, and it will only make your score go down.
What Are the Benefits of Having An Excellent Credit?
If you act responsibly and manage your finances in the right manner, it’s absolutely possible to have a good credit score. The higher the score, the more benefits you enjoy. Having an excellent credit score allows you to enjoy the following benefits:
- A range of credit options
- Different mortgage options
- Access to affordable insurance policies
- A variety of top-quality credit cards
- Getting approved for a loan
If it’s financial wellness that you’re after, each of these benefits is vital to achieving your ultimate goal. It’s safe to say that the key to leading a quality life is in your credit capacity. Being the owner of a good credit score is a privilege that creates great opportunities everywhere you go.
What Is Credit Score & Why Is It Important?
Everything a person does in their life is affected by their credit capacity. The higher the capacity, the higher the quality of life. If you need a new house, your credit score will have the final say.
People with bad credit scores see many doors shut to them, especially if they need to get a mortgage or any kind of loan with a decent interest rate. With credit, one thing leads to another, and everything adds up quickly.
If you constantly carry a bad score, you will only fall deeper into the financial abyss by consuming any of the available lending options, simply because lenders and financial institutions see you as nothing more but high risk and liability.
On the other hand, if your credit score looks great, all doors will be opened to you. We already mentioned that every lender and bank would check your credit before they decide to do business with you.
Bad credit could prevent you from getting any financial product when you need it the most. And don’t think that this only applies to credits and loans like a mortgage. You won’t be able to rent an apartment with a bad score either.
Each landlord will turn to your credit score before they rent you a place. The same goes for finding a better job, etc. Finally, if you ever need insurance, your insurance policy terms will be largely affected by your credit score.
The lower the score, the higher the premium.
What is Credit Utilization?
Your credit has two fractions – the one you already used and the one you’re currently using. Credit utilization is the percentage of the amount of credit you already used. If your credit utilization rate is below 30%, you’re more than good.
A great credit utilization rate is one of the safest, easiest and most effective ways to improve your credit score by giving it a good financial boost. To ensure your CU rate is below 30%, you need to have the means to pay for what you already spent.
If your CU rate is above 30%, it’s time to take things into your own hands and think of the ways to reduce it. Why? Because a high CU rate creates more additional expenses. You have to think about paying down your credit card balances to avoid paying hefty fees and penalty points.
Here are some options to take into consideration:
- Get a new card – while we already mentioned that having numerous credit cards isn’t credit score-friendly and it only leads you to owe more than you can pay back, sometimes, getting a new card is the only way out of your financial nightmare. We’re talking about simple math here – a new card means more available credit. However, be aware of this option as you might end up with even bigger debt than before.
- Apply for a credit limit increase – if your situation requires you to, you can file an application to increase your credit limit. While the decision is in the card issuer’s hands, the chances are that you’ll get approved if you have been financially responsible toward your obligations.
- Early payment – if your current financial situation allows you to pay your debts early, before the due date, you should go for it. Not only will it lower your CU rate, but it will also look good on your credit report.
- A borrower can take only the money they need
- Interest incurs only on the amount borrowed
- Flexible repayment options
- Instant access to funds
- Lower APR
- Non-deductible interest expense
- The interest rate can increase
- Monthly and annual maintenance fees
What is Credit Repair?
If your debt is simply overwhelming for your current financial capabilities, you can try to repair your credit by hiring services of the most reputable credit repair companies. While this sounds like an additional cost, the majority of these companies provide free advice and affordable consultations that can help you achieve your current financial goal.
On the other hand, many of these organizations will agree to lend you their expertise at the most competitive prices. Their knowledge and expertise can help you develop a debt management plan. More importantly, these advisors can negotiate with creditors in your name and help reduce your monthly payments.
The best thing about such a move is that it won’t negatively reflect on your credit history, and you’ll be free to continue making payments on time and according to the new terms. If you need more options and alternatives, it’s also worth mentioning that you can use other financial products to consolidate your debt.
Consider applying for a balance transfer credit card or a personal loan. Both solutions can result in reduced monthly payments and lower interest rates. The only problem with these alternatives is that you have to qualify for both solutions.
How to Fix Credit Fast?
In case you can’t see the latest payments in your credit report, you don’t need to worry. In Canada, creditors and lenders only report to the two main credit bureaus – Equifax and Transunion. In other words, they have a period basis that includes providing monthly reports, most of the time.
You can use a period of up to a month to repair your credit, as that is the time window it takes for your creditor to update their reports. All financial institutions use your credit report and all other financial factors when assessing any potential risks that might go with lending to you.
If your credit score is bad or your report has any negative data, the risk is high, and you probably won’t get a loan, or you’ll get one but at much higher fees and rates. Since you can’t change this information, the only way to repair your credit fast is to ensure your creditors that you can pay your bills, monthly dues, and all other financial obligations on time.
This helps you not only fix your credit but build a good credit history. Put simply, this type of financial behavior leads to improving your credit score.
How Can I fix My Credit by Myself?
You can repair your credit by yourself, but it won’t be easy at all. Any negative information about your credit activity remains up to 10 years on your credit report. If you still want to fix your credit, here’s what you can do.
- Check Your Credit Report.
Checking your credit report is the best way to ensure how much you owe and what your creditors see. This will also allow you to see if there are any irregularities in your credit report so that you can file a dispute.
- Improve Your Payment History.
Since your payment history is one of the most vital elements of many FICO scoring models, any missed or late payments will contribute to reducing your credit score. To avoid this, you need to pay your dues on time, as that’s the only way to improve your credit score; the better the score, the better the credit.
The Bottom Line
It’s without any exaggeration that we emphasize the importance of your credit and why it’s important to do everything to keep it looking good.
Since your credit makes or breaks every other aspect of your life, we can safely conclude by saying that your credit is either going to improve the quality of your life or be the main cause of your bankruptcy.
You don’t have to be a banking expert to get a hold of your credit. It takes only financial responsibility to get your credit in line.