Unless you have loads of cash just sitting in your bank account, there’s a good chance you will need to take out a loan at some point, whether to buy a house, purchase a vehicle, or go to college. Borrowing money can be stressful, especially if your credit score is questionable. These days, Canadians fear the rising interest rates, especially mortgage rates, making having a good credit score fundamental when dealing with lenders for a loan or requesting a line of credit.
TransUnion and Equifax are the major credit bureaus in Canada, and it’s important to understand what affects Canadian credit reports and what doesn’t. If you have money in savings, congratulations! Unfortunately, the amount you have in your bank doesn’t count towards your credit score. Your score is directly impacted by your credit history, which is a combination of your payment history and credit utilization on credit cards, lines of credit, and other loans, such as a car loan. We’re here to debunk some common credit score myths around good and bad credit.
Pulling your own credit
Myth 1 is that requesting your own credit score hits your credit. Making a soft inquiry to determine your score won’t affect your credit rating. It’s when a third party makes a hard inquiry to qualify you for a loan based on your creditworthiness that could impact your score.
Closing Credit Card Accounts
Cutting up your credit cards will improve your credit score in Canada is myth 2. If you have a history of having credit card debt through multiple credit card companies, closing specific accounts won’t improve your credit rating. The history of the cards will stick with you for up to six years, and if (when you had those cards) you missed payments and continuously requested a credit limit increase, that all gets filtered through credit reporting agencies.
Income Determines Your Credit Score
The amount your paychecks are determines whether you have good or poor credit coming in at myth 3. Have you ever heard the saying, “the more you make, the more you spend?” Just because you make “good” money doesn’t mean you have good credit. Your credit score is based on the amount of debt you have and your utilization rate. You will most likely qualify for higher credit limits with a higher income. Still, if you rack them up and your credit utilization ratio is high, your score will significantly drop.
Sure, making minimum payments on your credit card accounts is better than not making a payment, but it earns our myth 3 spot for its huge misconception. When Canadians make minimum payments, the majority are only paying interest, and therefore, you aren’t really paying off debt. Debt management is crucial for keeping your credit score high. Financial institutions look at your ability to pay off your loans without any missed or late payments when determining your creditworthiness.
We get it; you’re married and “own” everything together. Well, myth 4 is that you don’t own your spouse’s debt. Any loans, lines of credit, and credit cards solely in your spouse’s name have no impact on your credit score. It is only when you have joint accounts that you opened together that it will impact your score.
Utility bills would be the easiest way to boost your credit score if they counted. Myth 5; the payments you make on utility bills have no impact on your credit rating. The flip side is that if there are too many late or missed payments, they could get reported and, as a result, harm your credit. Like all Canadians have utility bills, the majority also have cell phone bills, which is one reoccurring bill that gets reported to the credit bureaus.
Don’t be discouraged by the misconceptions about building your credit score. Trust us, everyone has debt, and more people have poor credit than good. Some lenders will still lend you money; however, it will be at a higher interest rate than if you had excellent credit. If you aren’t interested in dealing with financial institutions and require a car loan, stop by DriveNation, and we are confident we can get you approved no matter what your credit rating is.