A credit report contains information about every loan, payment history, debts and even whether you pay your taxes on time – OK maybe not so much the taxes. It does however, show creditors up to 10 years of financial data including declared bankruptcies, collections, debt counseling and legal actions taken against you. Credit bureaus such as Equifax and TransUnion Canada compile and sell your financial details to banks, mortgage companies, landlords, the car salesman and just about anyone who needs to make a decision on whether to approve you for a loan or credit card.
As a financial advisor, I’ve seen my fair share of reporting disasters that have had an enormous impact on a person’s credit score. It is in your best interest to periodically check credit records for any inaccuracies. Since lenders want to reduce the risk of loan default, credit scores are almost universally acceptable as the measure of a person’s ability to make payments and how well they can manage debt.
Because this information is used to evaluate your applications for credit, insurance and loans, it is important that the information on your report is complete and accurate. Credit scores in Canada range from a low of 300 points to a perfect rating of 900. The average Canadian with a good credit score will have a score that is higher than 640.
See also: How your credit score affects you
On a month-by-month basis, credit scores can increase by as much as 20-50 points. Over a period of 2 years, you can see your rating increase by as much as 100. The point I’m trying to make is that credit scores fluctuate and they don’t often stay the same. However, there are thresholds that each lending institution will want to meet before giving out a loan. In my opinion, a score of 600+ (although not really a great rating) is the general cut off between good and bad credit.
As a first step, make sure you check your annual credit reports and clean up any mistakes. An incorrect late payment data can substantially lower your rating. However, when negative information on your report is correct, it can only be removed over time. Each province in Canada has a set of rules outlining how long late payments can stay on report – usually the time frame is between 6-7 years.
You can easily increase your credit score by making regular payments towards your credit cards and loans. If you need to increase your credit score as soon as possible, I suggest paying down your debts and reducing the amount of credit you have. Pay off smallest credit cards first and don’t let any credit card balance go over 50% usage. Credit scores can jump by 100 points within 6 months if you continue to be proactive in managing your debts and payments. However, a more realistic bump in score will be closer to 5-15 points a month.