Looking to buy your own house? Eyeing a new car for yourself? Either you pay from your pocket or take a loan to fulfil your dream. But sometimes getting your loan application approved becomes a hard task.
Your lender will rely only on your credit. That is the only way for the lender to know if you are a safe bet to lend money. High credit score means higher safety. Low credit score will lead to your loan application being rejected.
A good credit report ensures benefits like lower interest rates, approval of a larger credit amount or even a favorable tenure of the mortgage etc. You can build your credit score block by block. We will help you through it.
What Exactly is Credit Score?
A credit score reflects your financial record in numbers. On a scale of 300 to 900, it shows the level of risk you pose to lenders as opposed to other customers. On this scale, high scores are desirable. The lower your credit score, the higher the lender’s risk.
1. What are credit scores and who in Canada produces them?
Banks, credit unions, merchants, and lenders share your payment information to credit bureaus. The two major Canadian credit bureaus that collect, store, and exchange information about your credit usage are TransUnion and Equifax.
2. What are the credit scores and how to interpret them?
A Credit score that falls in the range of 660 to 724 is good. Anything between 725 and 759 is excellent and above 760 is outstanding.
Though credit scoring models differ, higher credit scores indicate that you have a history of good credit conduct, which can give the future lenders and creditors more confidence in your ability to repay a loan.
3. What should be your credit score at the beginning?
The minimum credit score is 300because that is where it starts from. It should increase from there consistently to build a robust credit history over time. It is a good idea to open a protected credit card account if you have no credit history or need to restore your credit.
4. What factors do Credit Bureaus consider when determining your credit score?
Credit bureaus takes several factors into consideration, such as your credit score and payment history, credit cards usage tenure, current debt, missed payments on a loan or a credit card, and available credit on your credit cards or line of credit.
5. How long do credit report details stay on your record?
Negative information stays for six years. Other information stays for a shorter or longer period, such as missed payments. More severe issues, such as, accounts under collection agency or a bankruptcy. Your credit score is impacted largely because of the negative markings on your credit report.
6. What is a decent credit score for a Canadian mortgage?
Getting a mortgage approval these days can be difficult, particularly with house prices constantly rising. In Toronto, for example, a home would set you back around $820,000, almost $100K more than the previous year’s average.
Reputed lenders, banks, and financial institutions in Canada need between 600-700 or more credit score to approve your mortgage. However, when applying for a mortgage, the credit score is just one of the variables to consider.
7. What is the time frame for establishing credit?
There is no short cut to straighten up a credit history and raising your credit score if harmed. Don’t be fooled by claims from shady businesses that claim to be able to improve your credit score quickly. Only the creditors are authorized to amend, modify, change your credit file based on your transactions with them as reflected in their official records.
Can I Build Credit More Quickly in Canada?
1. Maintain payments regularly and with stipulated timeline
This is the key to improve your credit score. Paying on time, before due date, and paying entire outstanding improves credit score. Creditors are looking for consistent, dependable payments that show you can responsibly handle credit.
If you bring a credit card balance from month to month, make sure you pay at least the minimum amount on time per month. Your credit can be harmed by even a single late payment.
2. Don’t go on a spending spree
Here’s something that many Canadians aren’t aware of. Your credit rating will suffer if your credit card balances are at their maximum limit and you are only making the minimum payment per month.
Credit bureaus prefer if you use a small portion of your available credit, thereby keeping the outstanding balances lower compared to the available credit limit. The thumb rule is to maintain credit card balances under 50% of the credit card’s overall limit.
3. Don’t take too much credit at once.
Applying for several credit cards or other financial vehicles in a short period of time is a red flag by credit bureaus. A hit on your credit file occurs when a lender requests to review your credit or obtain a credit report.
Furthermore, too many checks will give the impression that there is an issue, making you a less appealing candidate.
4. Credit reports should be checked regularly.
Avail of your credit report and review it periodically to stay on top to ensure that your financial records are correct. Report immediately if your account information or transactions are reported incorrectly or incomplete.
Contact the lender or creditor if you find details that you think is incorrect or incomplete.
You can ask the credit bureau to review your credit report if you spot anything incorrectly updated.
Having an excellent credit score instills confidence as you feel more financially secure in life. It prepares you better for financial emergencies.
Now that you have decent knowledge about building a great credit score, you can learn more about the ways in which refinancing impacts your credit score. Read on to know if refinancing can harm your credit score.