Credit score

A good credit score isn’t just about paying your bills on time.

Monitor how much you spend on credit and how often you apply for new loans

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If you think three small numbers can’t hurt you, wait until you try to get a mortgage, take out a car loan, or apply for your dream job with bad credit.

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Although a bad credit score doesn’t always prevent you from getting a loan, it will make the process more difficult and much more expensive.

With mortgages in particular, those with bad credit end up paying up to five times more interest over the life of their loan, compared to borrowers with the highest scores, according to a study by Self Financial. , a fintech company in the United States.

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A borrower with the lowest credit score would pay $486,000 in interest on a mortgage that would only cost a borrower with the best credit $88,000.

For many Canadians, that difference is a life-changing sum of money.

Canadians are using COVID to repair credit

Last summer, Statistics Canada revealed that the country’s total household debt stood at $2.5 trillion.

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While Canadians added nearly $100 billion in mortgage debt in the first year of the pandemic, the researchers noted that most other types of debt had been significantly reduced, including those with credit scores. the lowest.

The conclusion they came to was that Canadians were “cautiously” using their savings during the pandemic to catch up on their outstanding balances.

Focusing on dealing with debt first is exactly what Stacy Yanchuk Oleksy, CEO of Credit Counseling Canada in Agassiz, BC, recommends.

“What’s more important than everyone worrying about their credit score is that people understand what it really means,” says Yanchuk Oleksy.

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What does this actually mean?

In Canada, there are two main credit bureaus: TransUnion and Equifax. Both of these companies collect information from creditors across the country to build your credit report. From this report, you will be given a score between 300 and 900.

There are a few factors that influence your score and they are each weighted differently.

Since payment history is one of the most important factors affecting a person’s credit, Yanchuk Oleksy says the behavior that tends to hurt someone’s rating is being late or missing payments.

The use of credit is the second most important factor. Yanchuk Oleksy says many people don’t realize that in this category, even if you pay off your balance in full before it’s due, your credit still suffers if you regularly borrow near your limit.

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“The credit system is incredibly confusing in Canada – what you would intuitively think would increase your credit… lower your credit score,” says Yanchuk Oleksy. “Understanding the system allows you to make better, more informed money decisions.”

Aman Anand, director of credit risk for TransUnion in Burlington, Ont., adds that in addition to familiarizing themselves with the credit system and sticking to good credit behaviors, consumers should also check their credit at least once a year.

TransUnion and Equifax make it easy for consumers to dispute any inaccurate or incomplete information on your credit report. Cleaning up your credit report can be a bit of a hassle, but it should also give your score a nice boost once you’re done.

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After that, it’s just a matter of staying on top of those good behaviors.

“We’re not suggesting you don’t ask for credit,” Anand says. “If you need it, of course you have to request it, but be careful how you handle it.”

Avoid making credit issues personal

The second biggest mistake Anand sees is that many people think their credit score reflects their self-worth, which Yanchuk-Oleksy also sees.

And she adds that it’s unfortunate that so many people tie their self-worth to their net worth, because it often leads them to try to hide their financial troubles rather than confront them head-on.

“When people don’t do so well with their money, they feel stupid, they feel embarrassed, and worse, they feel ashamed,” says Yanchuk Oleksy. “And so often they don’t ask for help.”

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So how does anyone know when it’s a good time to work on their credit rating?

“When it comes to money, the sooner the better,” says Yanchuk Oleksy. “It’s kind of like health issues, you don’t want to wait until you have a grapefruit-sized growth hanging from your leg, you want to go for it as soon as there’s the first sign of pain. .”

She adds that it’s important to remember that credit scores fluctuate. You will face a ding when you request a new account or close a long-standing old one. If you make a big purchase on credit, you might lose some numbers.

But if you stick to behaviours of a good borrower: Make payments diligently and consistently on what you owe, it will all go down the drain, says Anand.

And more importantly, you’ll feel more in control — which Yanchuk Oleksy says can have a profound effect.

“People feel more confident – they feel more competent,” she says. “And they make better decisions. Because… now you’re in the driver’s seat with your money, and you can steer your car wherever you want to go with your money.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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