Daniel Teo • Jan 08, 2018
Building good credit after a financial setback is not an easy task. While it can be tough to sort through all the information available, challenging your assumptions is a good place to start!
Look out for these credit score myths that might set you back if you’re trying to get your financial house in order.
The credit utilization ratio is the amount of money you owe compared to the total amount you can borrow. This ratio makes up roughly 1/3 of your credit score. The higher your ratio, the more it can hurt your score.
For example, let’s say you have two credit cards:
Your credit utilization ratio works out to about 13% ($200/$1500).
As you charge more purchases to your credit cards, the ratio would increase; owing $1000 on $1500 of available credit would bump up the ratio to 66%. Higher ratios may lead lenders to question your ability to pay back your loan and be responsible with credit.
Paying down balances on credit cards quickly is a smart way to protect your credit utilization ratio and increase your credit score.
From landlords to phone companies, creditors will report your payment history to the two credit bureaus in Canada: Equifax and TransUnion.
Banks regularly report accounts closed with a negative balance and late payments on credit lines. Past-due utility bills, unpaid traffic fines and parking tickets can also show up as negative items on a credit report and hurt your score. Those negative items could hang around for seven years, so even one small unpaid bill can do a lot of damage.
It’s important to pay all your bills on time to build a solid payment history and boost your credit score. If you have bills past due, contact the companies you owe to make payment arrangements. In some cases, you may be able to negotiate a lower payment amount or break up the total amount due into several smaller payments that fit into your budget.
When possible, setting up automatic bill payments can simplify the process and avoid the harsh penalties.
Those with credit scores below the mid-600s are considered “subprime” in the lending industry. Many financing companies specialize in extending credit to people with subprime scores.
Better credit scores mean lower interest rates and better terms, so you should aim to make every payment on time to help build your credit score.
The Last Word
Believing in these credit score myths will hurt your credit score and can even ruin your ability to get a loan.
To raise your credit score:
Recovering from bad credit, raising your score, and getting back on the road to good financial health takes time. While the journey might be a work in progress, the future reward of lower interest rates and more flexible financing options are well worth the effort.
About The Author
Daniel Teo is a personal finance expert and travel writer for Urban Departures in Toronto. With a passion for financial literacy and a wanderlust that has brought him to over 30 countries, his stories reveal what can be achieved with good financial habits. Urban Departures has appeared in The Globe and Mail, the Toronto Star, CBC and on BNN. Connect with Daniel and Urban Departures on Instagram and Twitter.
You may have heard that making on-time payments is the key to having a good credit score. But just how important is it to make your payments on time? If you’ve made the mistake of missing payments in the past, what can you do to help improve your credit score now?
The Borrowell Team
Jun 12, 2020
It's always good to know what you can do to improve your credit score, no matter where you are on your financial journey. Whether you’re looking to rebuild your profile or planning a big purchase in the future, increasing your score can mean more attractive interest rates and offers on things like credit cards, loans, mortgages and lines of credit.
The Borrowell Team
Mar 01, 2020
With all the different credit options available in Canada, it’s important to understand the differences between each one so that you can find the right product for your needs. Credit can be useful to help you establish a history and finance purchases, but should be used mindfully. In this Borrowing 101 article, we’ll give you an overview of personal loans and lines of credit to help you understand how they work, when to use them, and what to be careful of in order to protect your credit score.
The Borrowell Team
Apr 27, 2020
Borrowell® is a registered trademark of Borrowell Inc. All Rights Reserved. The Equifax credit score is based on Equifax’s proprietary model and may not be the same score used by third parties to determine your credit profile. The score provided to you for educational use is the Equifax Risk Score.
2014-2020 Borrowell® | The Credit Is All Yours!