Categories: Blog

The Complete Guide to Credit Scores in Canada

What is a Credit Score?

Your credit score is a rating assigned to you by the credit bureaus.

The rating is between 300 and 900, where 900 is the best you can get and 300 is where you start off.

This rating is one factor, albeit a major factor, used to determine whether you can get a loan, mortgage, credit card, and services such as a cell phone, rental car, and utilities for your home.

Financial institutions use it in conjunction with their own data they have collected on you to determine if you’re eligible for their products and services.

There are 2 major institutions that keep a record of your credit score and they are called credit bureaus. There are two you should know of:

Equifax

Transunion

These two companies keep a history of all your credit accounts such as credit cards and loans with some key data associated with your accounts. They also keep track of your employment history, address, and other personal information to be able to identify the correct individual.

The funny thing about the credit bureau regarding mortgages, however, is that your mortgage loan is not kept on file once it’s paid off.

Why?

I don’t know and it’s something I’ve got to look into one day. But, all I know is that it’s not kept on file with the credit bureau once your pay it off unlike your credit cards or other loans. Your lender and mortgage broker, if you used one, will have this info of course.

How Long is Your Credit History Kept For?

Your information is kept for up to 6 years.

Not everything is kept for 6 years, but almost everything.

Inquiries into your credit score are only kept for 3 years.

But, important things such as your different credit cards and loans are kept for 6.

What if I Want a Mortgage Loan and My Credit Score is Low?

If you’re looking for a mortgage and your credit score is low, it’s best to increase it.

You can get a mortgage when your score is low, but, you’ll end up paying a much higher interest rate.

So, depending on your situation, you can get one now and pay a much higher interest rate, or wait and increase your credit score.

If you want one right away, I suggest my article about mortgages and low credit scores.

If you are able to wait, then you want to increase your credit score before applying.

How to Increase Your Credit Score?

To increase your credit score the fastest, you have to have some debt you are paying off regularly with at least the minimum amount required by the lender.

One easy way is to get a credit card and pay it off every month without incurring any interest. Incurring interest won’t negatively affect your credit score, but, you’re paying interest! So, if you can, pay it off before you incur interest.

The great thing about credit cards is not having to carry money, getting a statement with all your purchases in one place, and getting a loan for free for a short period of time.

Pay all your phone and utility bills on time. Paying on time is the best way to increase your credit score.

When you think about it, who wants a customer that doesn’t pay their bills on time or doesn’t pay at all? So, pay it off on time.

Pay your bills for a long time. The longer you pay a particular lender, the better it looks for your credit score. So, don’t use one credit card for a year and then change it. Try and use your credit card for many years.

Don’t max out on your credit. It looks better for your credit if you don’t use your entire credit on a credit card. Keeping it under 75% of your maximum is important.

I often max out my credit card if I go on vacation. For me, I don’t worry about these kinds of situations. Plus, I usually have to book the entire vacation on my credit card to get the free comprehensive insurance.

Have a variety of credit accounts. I think it’s funny, but, the more types of credit accounts you have is better for your credit score than just having one. So, having a loan, a credit card, and line of credit looks better than just have a credit card only.

Don’t have too many credit accounts. On the flipside of having a variety of accounts, you don’t want to go the other way and have too many. Although I don’t know what too many is, having over a certain amount will lower your score.

Don’t apply for too many accounts. Each time you apply for new credit, it lowers your credit score. So, don’t apply for too many accounts, particularly at the same time or in a short period of time of each other.

Summary

You have to have debt and pay it off regularly to get a good score.

Having no debt is not beneficial for your score.

A long term history of paying off low-balance debt on time with a variety of accounts is the best recipe for increasing your credit score.

What is Your Next Move?

So, why were you reading this?

Do you have bad or low credit? Need more advice or have more questions?

Feel free to comment below or send me a personal note

Cedric Liem

Recent Posts

Toughest time ever to buy a home in Canada?

https://www.youtube.com/watch?v=NFlIfg0XoJk by CBC News on April 15, 2024 It may be the hardest time in…

5 months ago

Why Are So Many Big City Condos Sitting Empty?

https://www.youtube.com/watch?v=xGfFBP7U7pQ by CBC News on June 20, 2024 In the midst of a housing supply…

5 months ago

Interim Occupancy Fee for Condos Explained (aka “Phantom Mortgage”)

The Interim Occupancy Date So, you bought a new condo and you got your letter…

1 year ago

The Mexican Fisherman and Investment Banker Parable

This is a short parable I first read in MoneySense many years ago. I recently…

1 year ago

Special Mortgage Rates at BMO

BMO Special Mortgage Rates last updated 2021-05-25

3 years ago

Special Mortgage Rates at TD Canada Trust

I've taken screenshots of TD mortgage rate special offers and promotions. Mortgage rates are at…

3 years ago