You just arrived in Canada, you must have heard about it : the Credit Score ... But what is this thing? So hang in there, because we're going to go and dissect it all together, and without it seeming boring (what a challenge!)..
Why do a Credit Score?
First of all, everyone is talking about Credit Score, but what is the point of it? The Credit Score is a bit like a label that banks will put on you : to know how you manage your money. If you prove it, you will be able to access apartment rentals more easily, but also to loans at more advantageous interest rates. This Score is calculated by credit bureaus like Equifax and Transunion which will keep track of your credit usage.
Unlike most Canadians, you have just arrived in the country, without having time to establish a Credit Score. So you start with a handicap.
The values of the Credit Score and its calculation
It's good ! You may have already obtained your Credit Score ... but what do these values correspond to? Follow me, I'll explain it to you right away. The Credit Score is evaluated from 300 to 900 ranging from "poor" to "excellent". Here are the levels according to the Equifax site:
300-560 : Poor
560-650 : Below average
650-700 : Fair
700-750 : Good
750-900 : Excellent. Well done ! You are part of half of Canadians with this level of Credit Score! Thanks to this, your credit applications will be approved faster by the banks, with lower interest rates.
To make it clearer, here are the factors taken into account in calculating the Credit Score, and their impact.
35% Payment history = you are a good payer of your credits.
30% the total of your credit used on your available credit (the percentage).
15% The Credit History (how long you have a credit card). and Public records = here we will see if you have already led a company to bankruptcy or if you have a criminal record.
10 % Types of credit used
10% Credit requests : your Credit Score will drop for any credit request. But if in the first months you repay your loans correctly, the points removed will be returned to you.
The basics to build your Credit Score
You can't build a score with a debit card. The Credit Score is established to assess how you manage the money the bank lends you over time and your ability to repay it. When you get a credit card, you have a limit that you should not go over ... let's say for example $ 1000. You won't be able to pay more than $ 1,000 per month with this card, and if you want to pay more, you will have to increase your limit.
If for example I pay two baguettes of bread for $ 10, then my credit account will be shown as -10 $. I should repay this "loan" before the time runs out (25 days). Depending on the banks, these refunds will be made either to the company or to Mastercard / Visa via a transfer that you will make (or the option I pay my bills in your banking application).
If you don't want to take the lead, do like me : call your bank and say that you want to switch to automatic management of your credit account. You will then be given a Mastercard / Visa advisor who will ask you if you want the reimbursement to be made each month or upon payment with your checking account. Choose as soon as you pay, because when you pay with a credit card you have 25 days to repay (and therefore less than a month).
How to build a Credit Score quickly?
There are ways to really optimize your Credit Score and thus allow you to achieve the Excellent level within 6 months. Here are the rules to follow to increase your Credit Score quickly:
Use 30% of your available credit : when questioning advisors, they say that using 50% of your credit is enough. But using only 30% increases it faster.
Concrete example: if I have a limit of 1000 $, but I spent 300 dollars: I am at 30%. IF I repaid those $ 300 before the end of the month, via a transfer from my checking account to my credit account (or by pressing pay my bills on my banking app) then I could reuse $ 300 again in the same month .
Refund the monthly payment : once a purchase is made with your credit card, you have 25 days to repay it. You can either repay it by doing it manually via the app, or you can program your bank account to automatically repay the credit used as mentioned above in the article.
Avoid taking too many credit cards : 1 or 2 credit cards are enough. We can advise to take 2 cards in 2 banks as a new arrival because the credit limits are very low when you arrive. You must create a security deposit, this is an amount that the bank will block in case you do not pay your credit (equivalent to your credit limit).
Avoid making too many credit requests : even if they are rejected, the credit rating bureau (Equifax / Transunion) will record this as an attempt to check your score. He will therefore deduce that you urgently need a loan or that you are trying to live beyond your means. This will have a negative effect on your Credit Score.
Keep your credit card the longest : only cancel your credit card if you really have to. Having a credit card for years is better for you even if you don't use it.
Vary the types of credits : having several types of credits in addition to the card will allow you to increase your Credit Score more quickly:
a loan for your car
open a line of credit on your bank account
a mortgage
“Hard hits” and “soft hits”
“Hard hits” are requests to check your Credit Score which will have an influence (usually negative) on your score. Anyone who views your file can see these requests. The hard hits are:
when you apply for a credit card / credit
when you request the rental of an apartment and the owner wants to check your Credit Score
some job applications
The “Soft hits” are the requests noted in your file that only you can see and which will have a lesser (a few points) or no influence on your Credit Score. These soft hits include:
When you ask to see your Credit Score
When a company checks your Credit Score for you for example
How do I know my Credit Score?
Typically, when you want to know your Credit Score, you have to pay a company about $ 20 to calculate it like Equifax or Transunion. However, some banks like CIBC do it for you for free via the mobile application.
For my part, I recommend the Borowell application, which will allow you to calculate your Credit Score and give you advice to increase it according to your different actions. click below to download the app.
Fizzy's advice
Apply now to open a credit account in your bank with a security limit of $ 2,500. You will block this amount in a "Savings" account and you will not use more than $ 750 on this card. Usually this is a Cashback credit card.
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