Why checking your credit score matters

Your credit report is a comprehensive record of your credit history. It contains crucial details such as your payment history, credit accounts, outstanding balances, credit utilization, and accounts that have been sent to collections due to non-payment.

Credit bureaus and lenders calculate credit scores based on the information in your credit record. Contrary to the common myth, regularly monitoring your credit record does not have a negative impact on your credit score, but it’s an important step in ensuring you maintain a healthy credit profile.

Why should you check your credit score regularly?

Your credit scores are three-digit numbers — ranging from 300 to 850 — that help lenders predict your likelihood to repay a loan on time. A good credit score tells lenders you’re financially responsible and capable of paying your bills on time. Many people don’t check their credit score because they’re afraid of what they will find. However, it is important to frequently check your credit record and credit score as the information helps you control and plan your financial life.

Other benefits of checking your credit score, include:

Understand your credit standing

A good credit standing boosts your chances of getting approved for loans and credit cards because lenders use your credit score to evaluate your creditworthiness. It also gives you a better grasp of your overall financial health so you can take steps to maintain or improve it. Routinely checking your credit score helps you know where your credit stands so you can stay on top of your credit health.

Identify inaccuracies and errors

Checking your credit score is crucial because personal information like your Social Insurance Number, phone number, or address, might be wrongly recorded in your credit report. You might also find that your credit score is lower than expected or suspect a possible fraudulent activity. You can identify these inaccuracies by monitoring your credit score and contacting one of the credit bureaus.

See what lenders see

Checking your credit score frequently gives you an idea of what lenders see when assessing your creditworthiness. You’ll learn how your credit score will impact your loan or credit card application ahead of time. This helps you prepare for a positive outcome by taking steps to improve your credit score, if necessary.

How to establish credit when you have no credit history

Building good credit takes time but the good news is that it’s possible. If you don’t have a credit history, it might be difficult to apply for a loan or credit card, finance a home or car, or even get a job. Building your credit helps you meet these financial goals, and you can start by doing these things:

Get a secured credit card

A good way to build your credit is by applying for a secured credit card. You can get it by sending a refundable deposit to the card issuing company to secure your credit line. If your application is approved, you’ll be given a credit card account with a credit limit. You can gradually increase your credit limit over time by using your secured card responsibly and making regular payments. This process allows you to build your credit standing and you can get your deposit back after you’ve shown healthy credit management.

Become an authorized user

You can become an authorized user by simply asking a friend or family member with a positive credit history to authorize you to use their credit card. Once approved, you’ll get your own card and be able to make purchases using the account. However, the primary cardholder remains responsible for all transactions and account management while you use the card. Before using this option, ensure to confirm that the lender reports authorized users to the credit bureaus as your credit score won’t benefit from the plan if they don’t. It’s also important that your primary cardholder has a good payment history and maintains a low credit card balance. This ensures that their positive credit behaviour reflects on your credit report and boosts your score.

Take advantage of your existing good financial habits

Positive financial habits such as timely payment of rent, utilities and phone bills can help you establish your credit score when you’re starting out. Contact the credit bureaus and make them aware of your payment behaviour for these expenses. They they may be able to add this information to your credit report.

What factors impact your credit score?

Payment history

Your payment history has the biggest impact (35 percent) on your credit score. It shows your lender how you’ve managed bill payment over time. A positive payment history proves to lenders that you are responsible and timely payments reflect well on your credit report.

Amounts owed

Your credit utilization ratio is the second most important factor impacting your credit score. It measures how much credit you use compared to the total credit available to you. It is advised that you keep your credit utilization below 30 percent to maintain a healthy credit score. For example, if your credit limit is $1000, you should keep your balance below $300. Lenders pay close attention to your credit utilization because the higher it climbs, the more it impacts your score negatively.

Length of credit history

Lenders are interested in knowing how long you’ve used your credit for or the average age of all your accounts. A longer credit history leads to a higher credit score as it proves to lenders that you have a track record of managing credit. It is recommended to keep your credit card accounts open even if you no longer actively use them. This boosts your score in the long run.

New credit

Opening multiple new credit accounts over a short period of time indicates an unhealthy credit behaviour. People resort to this when they face cash flow problems and want to settle their debts with credit. Not only is this a red flag for lenders, but it can also reduce your credit score.

Credit mix

Finally, your credit score is influenced by the mix of credit types you have, including credit cards, retail score cards, loans, mortgages, and more. A healthy mix of credit can have a positive impact on your credit score.

How to keep a healthy credit score

To help you keep a healthy credit score:

• Do not max out your credit cards;
• Do not load up on your credit cards and then repay them slowly;
• Make medical payments on time;
• Be sure you’re aware of the impact of being a co-signer;
• Know that long-term, fixed term loans are better than short term;
• Pay your bills on or before their due date.

Does bad credit ever go away?

Most negative information generally stays on credit reports for 7 years. Bankruptcy stays on your Equifax credit report for 7 to ten years, depending on the bankruptcy type. Closed accounts paid as agreed stay on your Equifax credit report for up to ten years.

Seek professional help

Building your credit score can be difficult but you don’t have to worry about it all alone. Contact us for a free, no obligation, confidential consultation to discuss your unique situation and provide expert advice to help you navigate the process.