If you plan to borrow money for a major purchase like a home or car, maintaining a healthy credit score is crucial. Your credit score is an important factor used by lenders to help determine whether your loan will be approved and how favourable the terms will be. Your credit score measures your creditworthiness and is used by banks to determine your chances of repaying your debts. Credit scores typically fall between 300 and 900.
You can improve your credit score in a number of ways, including paying your bills on time and in full, and limiting the number of credit inquiries. A high credit score can help you obtain a lower mortgage rate and save thousands of dollars in interest over the life of your mortgage. Here are the five must-know factors used in your credit score:
Your payment history
Your payment history carries the most weight in your credit score. It shows when you pay your bills and if you missed any payments or were late. Try your best to pay your bills on time. If you can’t make the full payment, at least pay the minimum to keep your good credit score intact.
Your credit utilization
Your credit utilization is the second most important factor. It looks at the percentage of the total available credit you’re using. A good rule of thumb is to only use what you can pay off monthly.
Your credit types
Your credit score may be negatively impacted if you only have one type of credit like a car loan. By having a variety of credit products, you can help keep your good credit score intact. For example, instead of having numerous credit cards, if you had a line of credit and fewer credit cards, your credit score would likely benefit. A word of caution: before applying for credit, make sure you really need it.
Your credit history
Students and newcomers to Canada often have trouble obtaining credit because they lack credit history. To start building a positive credit history, you might want to consider obtaining a credit card while you’re in college or university. Just make sure you use it responsibly by paying off the balance in full each month.
How many inquiries
Having a large number of credit inquiries within a short period can lower your credit score. It's important to only apply for the credit that you need, to prevent unnecessary inquiries.
How do you access your credit score?
There are two main credit reporting agencies in Canada: Equifax and TransUnion.
You can request your credit report by mail, online, fax or phone. You’ll need to complete an application and confirm your identity by providing photocopies of your ID.
You can contact the agencies by phone:
Equifax: 1-800-465-7166
TransUnion: 1-800-663-9980
Here are the forms you'll need to complete if requesting your credit report by mail or fax:
Equifax credit report request form
TransUnion credit report request form
You’re entitled to one free credit report by mail each year. If you’re not willing to wait for the mail, you can access your credit report instantly online, however you’ll have to pay a fee. The paid report includes your credit score, but the free mailed version is a credit report without your credit score.
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