The dictionary term of balance is to provide a state of equilibrium, an equal distribution of weight or to provide stability. This holds true for Canadian Credit Reporting as well. In order for Canadians to improve their credit score, a simple rule that many advisors miss is ‘keeping a good balance’. We’re not talking about the balance – in terms of dollars – on your credit card, but it is the balance of your entire credit portfolio. In this article, I will discuss a simple way to quickly improve your credit score and have great credit.
There are a surprising amount of detail on a credit report. It contains information about every loan you have had and is used to calculate your credit score. All Canadians who have taken out a loan will have a score. This score is basically used by all lenders to make credit decisions and determine if you have Good or Bad credit. Have you checked your credit report lately? If you haven’t, the first step is to obtain your report. All Canadians have access to their credit history for FREE or conveniently online for a one-time fee.
Now back to the topic at hand, the credit balance that we are referring to is the right balance or mix of credit types. It is the varying of the types of loans that will have a great impact on the health of your credit rating. For example, if you have always paid your credit cards on time, you technically have perfect credit, but to lenders, your credit score may just be average. Why? because your report only shows that you have credit cards, but not any other type of loans such as, mortgages, car loans, RRSP loans etc. Having only 1 type of credit doesn’t help you improve your score.
For those with lower credit score or looking to improve credit rating, it is recommended you take out loans of varying types to quickly improve credit scores. A healthy credit report should have at least 2 credit card loans, 1 closed loan (such as a car loan, student loan, mortgage) and at least a few open accounts such as cell phone or utilities. Strike a balance with your credit types and you will see a great improvement in your scores.
For the record, here are some of the different types of credit Canadians have access to;
This type of credit refers to loans that have a different payment each month depending on the current balance. You are not required to pay the account in full, but usually just make a minimum payment to keep it at a good standing. Some examples of a revolving credit include;
- credit cards issued by banks
- credit cards issued by non-banks such American Express
- credit cards issued by retail stores – Futureshop, Sears, The Bay etc
- credit cards issued by Gas Companies – Shell, Esso, Petro Canada
- home equity lines of credit
This type of credit refers to loans that have fixed payment for a period of time. You may the same payment monthly until the account is paid. Examples of an installment account are listed below;
- Auto Car loans – usually issued by banks but generally come with a term, such as 48 months, 60 months
- Home Mortgages – generally issued by banks or credit unions, MCAP etc
- Student Loans – loans offered by the government or banks
- Home equity loan – a loan you take out and have to repay within a certain timeframe
Open Credit Loans
This type of credit usually has no credit limit but requires payment towards the account on a monthly basis. If you are rebuilding your credit, this type of loan may be easier to start with.
Cell phone or home phone accounts – Many phone companies such as Bell, Rogers or Telus will report your payment history with Canadian Credit Bureaus and will have a positive impact on your score.
Cable TV Accounts, Utility bills, electricity, water, gas, Internet accounts may be reported on your credit report. While you may not see all your accounts included in your credit history, generally, these companies are recognizing the importance of having it reported.