January 31, 2023

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Moving out on your own, financing a car or landing your dream job – all of which may require a good credit score. Your credit score tells you how trustworthy you are in the eyes of creditors, and can range from a low of 300 to a high of 900.

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A good credit score (usually in the high-600 to mid-700 range) can help you qualify for a car loan, mortgage or insurance. This can help you get the best interest rate from your lender. Sometimes, a landlord or employer may ask to see your credit score before accepting you as a tenant or offering you a job. For this reason, it’s important to know how a credit score works, as well as how to build or improve your score.

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Factors affecting your credit score

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Younger adults have, on average, lower credit scores than older Canadians. At the time of a 2018 study by Equifax Canada, Canadians aged 18 to 25 had an average score of 692. This was lower than in all other age groups – including 26 to 35 year olds, who had an average score of 697. On a positive note, the data also found that young adults’ average scores improved over a 10-year period, apparently from learning good financial practices early.

Two of Canada’s credit bureaus, Equifax Canada and TransUnion Canada, have their own credit score formulas, which are not shared publicly. They usually take similar factors into account when determining your score. The main factors to look for if you want to make a strong score are:

Credit History: This shows how long you have had access to credit. It contributes to your credit score by showing lenders that you are able to borrow money and pay it back. Since lenders like to see that you are able to handle credit accounts for a long time, it is advisable not to cancel any old or unused credit cards, as that credit history will be wiped out. Debt-to-Credit Ratio: Also known as your credit utilization ratio, this number is expressed as a percentage and indicates how much revolving credit you are using. This includes your credit and credit cards in relation to the total amount of credit available to you. Ideally, you want to keep your overall credit balance at or below 30% of your overall credit limit. If you’re constantly increasing or going beyond your credit limit, companies may wonder if you’re able to pay off the balance, so you could be flagged at higher risk for delinquency. . Payment History: This is based on whether you have defaulted on any loan payments. If you miss a payment by more than 30 days, the lender will usually report it to the credit bureaus, and it can negatively affect your credit score. Credit Check: If you’re shopping for a new credit card, mortgage or car loan, the lender requests your credit report. This is known as a credit check. If credit checks are conducted too frequently, lenders may think you are living beyond your means. Ideally, it is best to make a purchase and get a quote within a period of two weeks so that all inquiries are combined into one and no red flags arise. Type of credit used: Lenders want to see the type of credit you have. Having a mortgage, car loan or line of credit along with a credit card helps to show that you can manage different types of credit. However, make sure you can pay off what you borrow, and avoid taking on too much debt. How to Get a 900 Credit Score in Canada

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Here’s how to build your credit history and get a top credit score.

Check Your Credit Score: You can get a copy of your credit report and credit score from Equifax or TransUnion online or by mail. Be sure to check your score with both credit bureaus as they use different scoring models. Also, make sure the reports are accurate, as errors can misinterpret your credentials. Also, verify that no one is trying to steal your identity and open accounts in your name. If you find any errors, report them to the credit bureaus to have them corrected. Use different types of credit: It is common practice to use a credit card to start building a credit history. However, over time, you’ll want to add other forms of credit to the mix. If you have outstanding student loans, making regular payments will help pay off your loans, as well as increase your credit score. A cell phone bill that you pay monthly, a car loan, a line of credit and/or a mortgage are all good ways to show that you can handle different types of credit. Build credit with your rent payments: With the current housing market making it challenging for young adults to own a home, many are turning to renting. Historically, renters have not been able to use their monthly rental payments to build their credit history because they typically pay by Interac e-transfer, post-dated check or cash. This has now changed with third party services that allow renters to pay with credit cards. Another program being offered is Borowels Rent Advantage, which allows tenants to report their rent payments to Equifax without the landlord’s approval. Limit the number of credit cards you have: Opening too many credit cards at once can hurt your credit score, and having too many credit cards in your name can make you seem risky to lenders. According to Equifax, two to three credit cards at a time are ideal, along with other types of credit. When you have access to more than that, it can be challenging to keep track of all your monthly payments. Pay your bills in full and on time: Lenders want to see that you are responsible for paying your bills on time and in full every month. Late or missed payments will hurt your credit score and may remain on your credit report for up to six years. If you are not able to pay the full amount, try to pay at least the minimum payment amount by the due date. Here’s a tip: Schedule automatic monthly loan repayments with your financial institution so you don’t miss the deadline. There are many benefits of a good credit score

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If you are a student or just starting your career, building your credit score will take time. If you don’t currently have a good credit score, don’t fret. Taking simple steps like making your monthly student loan payment, and paying off your credit card balance and cell phone bill each month will build your credit history and help you improve your score. And in the long term, it can have all kinds of other benefits, including getting better interest rates on loans, being accepted as a tenant, and even getting hired for that dream job of yours. .

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