What Are Credit Scores And Why Are They Important?
Everything you need to know about credit scores in Canada. Credit scores are an essential part of life yet something that is never taught in schools. So how does one get by without the knowledge of what they are and why they are important and how to get one? It is more important now than ever to ensure you’re ensuring you are in good credit standing. We hope to provide you with all the basics of what you need to know about a Canadian credit score so that you can become well-informed and confident in your financial standing.
A credit score is a 3 number point system that determines a person’s ability to obtain a loan, line of credit or mortgage from a lender like a Bank. It is also used to determine the credit terms for the money you borrow. It is essential for building financial confidence and security.
Basically, it is derived from your credit report which is a report that is generated from your history on your ability to pay your bills on time and manage your credit, creating your own personal credit profile. It determines the level of risk involved if a lender were to lend you money.
This information is collected through a credit bureau and there are two main ones within Canada. Equifax and Transunion.
Generally, the higher your score, the more favourable your credit terms will be as it shows responsible credit behaviour based upon your payment history. Furthermore, this will allow you to receive lower interest rates on loans which can save you a lot of money over time.
A credit score can range between 300 - 900 points. A TransUnion credit score may be obtained slightly differently than an Equifax credit score. Each lender may use a different scoring system but essentially the end score is representative of the following:
1. Poor credit score (300 - 579)
2. Fair credit score (580 - 669)
3. Good credit score (670 - 739)
4. Very Good credit score (740 - 799)
5. Excellent credit scores (800 - 900)
The Score Basis by Government of Canada has listed a few ways to help you increase your credit score below:
• Build a credit history with a credit card. The longer you have an account in good standing your credit score will increase. If you ever wanted to check your credit history you can obtain your report through a credit bureau for free every 12 months without impacting the score. An Equifax Credit Report can be obtained easily.
• Try to pay your bills on time and in full in order to maintain a good repayment history and improve your score. If you can’t pay the full bill, aim to meet the minimum payment.
• Don’t apply for credit or switch credit cards too often. Try to avoid collecting too many personal loans as well as they can be harder to maintain. Generally, Newer accounts will lower your average account age, which may negatively impact credit scores along with constant credit checks. Make an effort to keep your total debt in check and try not to let small balances add up.
During these recent times, inflation has made everyday purchases more expensive. Along with that, interest rates are on the rise and it is becoming increasingly difficult for many Canadians to maintain their standard of living and a good credit score as many have to tighten their budgets.
It is most important at this time to ensure you are managing your credit and ensuring you can repay your debt and not exceed more than you can afford. Protecting your credit score at this time is essential. If you are looking for additional ways to ensure your financial security is intact, consider more information and valuable resources by Equifax to further protect your credit scores during this time.