Credit, Where Credit Is Due: Understanding and Improving Your Credit Score
Banks and other money and credit lenders use a number called a credit score to follow your financial footsteps. This score can determine whether or not you will obtain a mortgage or a credit card or be able to take a long-overdue vacation.

BY ROBERT RONALD

What’s the Score?

Your credit score is an assessment of your financial state at a specific point in time. Lenders use your credit score to quickly determine how your financial accountability stacks up against other consumers.

Credit-reporting agencies Equifax and TransUnion use a scale from 300 to 900 to determine credit scores. A higher score indicates to a potential lender that you are less of a credit risk than someone with a lower score. A higher score increases your chance of obtaining loans, credit cards or a mortgage or whether a landlord will rent you an apartment. A higher score also increases the likelihood of a better interest rate on a bank loan.

According to the Financial Consumer Agency of Canada (FCAC), not all factors have the same weight in determining your credit score. The most important factors “are your payment history, whether you have ever declared bankruptcy and the amount of your outstanding credit balances.” Other factors include how long you have had credit, how many times someone has asked about your credit history, and whether you have credit cards only or credit cards and loans.

Errors in Your Credit Report

Your credit score is based on your credit report—your financial report card. It is a detailed account of your good or bad financial behaviour, and any erroneous information in your credit report will likely result in an inaccurate credit score. Be sure to check your credit history on a regular basis with the major credit-reporting agencies, Equifax (www.equifax.ca), TransUnion (www.transunion.ca) and Northern Credit Bureaus Inc. (www.creditbureau.ca), to guarantee your credit history is error-free and that you are not a victim of identity theft. If you find any errors, report them to the agencies immediately. You should also contact the financial institution in question and ask them to follow-up with the credit-reporting agencies. Credit reports can be obtained by mail free of charge. Credit scores, for a fee, can be accessed online (except Nova Scotia residents).

Improving Your Credit Score

Establishing good credit takes time. It is not something that can be obtained overnight, but there are some short- and long-term goals that will help boost your credit score

Credit history: A common problem for young and new Canadians is that they do not have a record of good credit practices. This can result in a low credit score. One way around this is to obtain a credit card and demonstrate that you can use it responsibly. If you cannot obtain a standard credit card, some banks offer a “secured credit card.” This allows you to place a deposit on a credit card and you can then borrow from the deposit. Regular use of the card—including timely repayment—will help your credit score.

Credit card limit: Never go over your credit card limit. This is a red flag to creditors and avoiding this pitfall will help your score. If you do maintain a balance, keep it as low as possible and definitely not more than 75 percent of your limit.

Debt payments: The sooner loans and credit cards debts are paid, the better.

Bill payments: Although standard utility bill (electricity, cable, telephone) payment histories are not taken into consideration on a credit report, debts referred to a collection agency for payment are, and will be reflected in your score.

Inquiry frequency: Each time a lender inquires about your credit score, your credit rating may drop. Ask for credit only when it is absolutely needed.

Stay put: Time is of the essence when it comes to credit. The longer the period of time you pay bills on time and demonstrate that you have used credit responsibly the better your situation. Having the same job and residence for extended periods of time are other indicators of stability to lenders.