How To Improve Your Credit Score In Canada – As a resident in Canada, having a good credit rating or a credit score is very important. With a good credit score, you are sure to qualify for better interest rates on mortgages and other loans down the line. To start building your credit history, then you should know that having and using a credit card is very important.
There are so many benefits of a good credit score, some of which are the fact that it will help you in obtaining a loan or renting an apartment, moving out on your own, financing a car or getting your desired job. With a good credit score, you can be sure to qualify for better interest rates on mortgages and other loans also.
If you wondering what a credit score is or how you can improve your credit score in Canada, then I advise you stay put on this article as we will be outlining what a credit score is, share valuable information to help you build a good credit history in Canada, and provide information on how to check your credit score and order a credit report.
What Is A Credit Score?
When people borrow money from a bank, some information is shared with a credit bureau. With time, additional information, like whether you have paid your bills early, whether you are yet to pay, and how much outstanding debt you have, will be shared with the credit bureau. These are the factors that are used to calculate and determine your credit score which is a 3digit number that indicates to lenders your capacity to pay back a loan, as reported on your credit rating report.
Credit scores range from:
- 300: The lowest score or the starting point
- 750: The middle number, which can likely qualify you for a standard loan
- 900: The highest score which is awarded for excellent credit history.
The higher your score, the lower the risk is to the bank, vice versa. A score under 750 can possibly make it more difficult to acquire loans or credit cards; you may receive a lower credit limit and get charged higher interest rates. For new immigrants in Canada, most banks offer a credit card when you open a foreigner account with them and this usually helps to get you started on your journey of building a good credit history in Canada.
Who Can See And Use Your Credit Report?
Here are those allowed to see your credit report include:
- Credit unions and other financial institutions
- Credit card companies
- Car leasing companies
- Mobile phone companies
- Insurance companies
These companies and individuals make use of your credit report to help them make lending decisions about you.
Basically, you will have to give your consent, for a business or individual to go through your credit report. In the provinces like Nova Scotia, Prince Edward Island and Saskatchewan, a business or an individual only need to tell you (verbally) that they are checking your credit report. Some other provinces will need to obtain your written consent to assess your credit report. Some provincial laws permit government representatives such as judges and the police to assess parts of your credit report without your consent.
How To Improve Your Credit Score In Canada
- Make payments on time and pay off your balance in full each month
When lenders assess your credit report and request to see your credit score, they are trying to find out how competent you are with paying your bills, since past payment performance is considered a good determinant of future performance. If you want to build a good credit history, then you must be aware of the importance of making all your payments on time. As your credit card bill will always show the minimum amount owed, because you are just getting started with building credit in Canada, it is advisable to pay off the balance in full each billing cycle. Paying the entire balance each month will really help you avoid stacking up credit card debt.
- Use credit wisely
Do not go above your credit limit. If you have a credit card with a $2,000 CAD limit, try to stay within that limit. Do not spend above what you can afford to pay back. When you spend more than the authorized amount on a credit card, it can reduce your credit score.
As it is advised that people try to use less than 35 per cent of their total credit in each billing cycle. This includes all your credit products like: line of credit, credit card from Canadian banks/lenders, loans, etc. Let me give a quick example, if you have a credit card with a $2,000 CAD limit and a $5,000 CAD line of credit from a bank, your total spending should be limited to approximately $2,450 CAD (35 per cent of 7,000) or less.
If you exceed your credit limit each month, lenders suspect you to be a greater risk, and it will affect your chances of getting loans.
- Limit your number of credit applications and/or credit checks
As a newcomer in Canada trying to get settled, it is normal and expected that you will apply for credit from time to time. A lender or other organization offering credit-based products may require assessing your credit report. There are two types of credit checks:
Hard hits: These are credit checks that will show in your credit report and can have an effect on your credit score. Anyone who views your credit report will see these inquiries. For example, an application for a credit card or mortgage, some rental applications, and some employment applications. If the (hard) credit checks in your credit report is too many, lenders may think that you are urgently seeking credit and/or trying to live beyond your means.
Soft hits: These are credit checks that are seen in your credit report but only you can see them. These checks do not affect your credit score at all. For example, requesting your own credit report or businesses asking for your credit score to update their records about your existing account with them.
To control the number of credit checks in your report
Reduce the number of times you apply for credit
When shopping around for a car loan or a mortgage, gather your quotes from different lenders within a two-week period. Your inquiries will be combined and treated as a single inquiry for your credit score
Apply for credit only when you really need it.
Report any inaccuracies on your credit report
After you have gotten your report, check for:
Errors in credit card and loan accounts, like a payment you made on time that is shown as late as this errors could impact your credit score negatively
Mistakes in your personal information, like a wrong mailing address or Inaccurate date of birth
Accounts listed that you never opened, which could be a sign of identity theft
Negative information about your accounts that is still listed even after the highest number of years it should be on your report.
Any form of inconsistencies or incidents of fraud should be quickly reported to the respective credit so it can be corrected. Monitoring your credit on a regularly can help you spot inaccuracies before they affect your credit rating.
- Use different types of credit: card, loan, line of credit
The number of credit products you have (like a credit card, line of credit, loans, and so on.) can affect your credit score. For those new in Canada, it is advised that you begin with a single credit card and gradually apply for other credit products as time goes on. As you become more settled in Canada, diversifying your credit and having a mix of credit products may greatly improve your credit score. Although, you may ensure that you can pay back any money you borrow, or you could end up reducing your score badly by taking on too much debt.
Frequently Asked Questions
If there are no errors on your credit report but you notice pejorative marks, it can take up to six months to start rebuilding your credit score.
1. Review your credit reports
2. Pay on time
3. Keep your credit utilization rate low
4. Reduce applying for new accounts
5. Maintain old accounts open.
5. Small (or small-ish), irregular expenses.
Having a good credit score is very essential for some of reasons we listed earlier and more, and for this reason, you must know how to improve your credit score in Canada.
It might be that you want to improve your credit score because you are new to Canada and starting from the scratch, or you are starting from a bad credit rating, the steps you need to follow are similar.
And now we have outlined and given you details of the steps you can take to improve your credit score in Canada.
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