How many of you check your credit score every year? I’m sure there are a lot of you out there who are just like me and really, truly mean to check it every annually but sometimes it just gets pushed off again and again. Well, NOT THIS YEAR! Here is your gentle reminder to go, right now, and make sure no surprises are lurking in the deep, dark world of credit reporting.
I know, it sounds like a hassle but it really is for your own good. Sometimes mistakes happen, and there might be an entry listed on your credit report that can cause you serious grief if you are looking at buying a home, getting a line or credit or anything else that requires you to pass a credit check. If you can find the mistake now, you can take steps to correct it so future lenders won’t see it and you’ll have no issues. What kind of errors might you find? Your credit report is basically a transaction history of every time you’ve used credit, so anytime you’ve taken out a loan, signed up for a new credit card, paid a bill, etc. If you don’t pay a bill on time the company you own money to can report this to Equifax and that entry will go on your credit report and lower your credit score. Usually, companies won’t go and do this right away, as long as you call them and get the bill paid ASAP you should be okay. Every once in awhile though a company will forget to report an invoice as paid and send that information over to Equifax. This is a huge pain and it’s a hassle to get it corrected, but it’s better to know about it now than when you’re sitting in your bank’s office trying to get approved for a mortgage.
Knowing where your credit score stands will also give you a good idea of how your financial situation is and if you need to work on improving your credit. A credit score of over 700 will really help out when applying for any sort of credit and will make sure you aren’t wasting money on higher than average interest rates. It also puts you in a better position to negotiate and more lenders who would be willing to lend you money.
Ok, how do I check?
There are two national credit bureau’s in Canada: Equifax (the most common) and TransUnion. Both can provide you with your credit report and credit score. When you visit either of these websites you’ll notice that they are pushing a monthly payment plan to get your credit score/report and get monthly monitoring with it. If you want to do that sure, but I don’t really think it’s necessary as long as you take matters into your own hands and check it every so often.
Now before you pay any money, you should know that you have some FREE options available. The government has made it the rule that TransUnion and Equifax have to give you free access to your full credit report once a year. They try to make this a little tricky since paid products are better for business but here’s what to do. For TransUnion, you are actually looking for what they call the ‘Consumer Disclosure‘ (who would have thought!) Go to that link and you can access a free online version of the report. Equifax still calls it a credit report, but the only way you can get it is to request a snail mail copy. This can be done by either calling them at 1-800-465-7166 or mailing/faxing them this form (old school right?!) That used to be the only way Canadians could get a free credit report, but the times are changing.
Neither TransUnion or Equifax will give you your actual credit score for free, but there are now two alternative resources you can visit. Borrowell and Mogo are both online loan companies that have made deals with Equifax to offer Canadians free credit scores. They are basically doing this to get their names out there with the hope that you will use them for your borrowing needs. I actually just recently tested out the Borrowell system to get my credit score and it was super simple and quick.
You will have to fill out some basic personal information and answer a few verification questions that come from Equifax (mine asked about previous credit history and the last digits of my SIN) and then just like that my credit score popped up on the screen. I haven’t tried Mogo yet but from what I can tell it looks to be a very similar process. You’re not under any sort of obligation to use their products after getting your free credit score, but you may have to unsubscribe from their emails…hardly the end of the world.
What if it’s bad?
Ok, so you’ve got your score, and it isn’t really where you’d like it to be. Not the end of the world but it means you’ve got some work today. The first thing you’ll want to do is review your credit report (or consumer disclosure…damn TransUnion) and make sure there is nothing on there that shouldn’t be. If there is an error, you will want to file a dispute by contacting either TransUnion (more info here) or Equifax (more info here) (whoever you pulled the report with). I’ve been lucky enough to never have to do this myself but have heard it can be a huge pain in the ass…brace yourself.
If everything on the report looks to be correct, then you’ll need to start taking steps to raise that number. This is NOT an overnight process, and anyone you find promising you a quick fix for your credit is straight up lying. You need to build your credit with good behaviour over time. The most important thing to do is always, always, always pay your bills on time. Having overdue bills reported will have an adverse impact on your credit and the only way to counteract that is to create some good payment history. Next, up would be reducing your debt. Being maxed out on your credit cards, a line of credit, etc. is not good for your credit score. It will look at your credit usage (how much credit you have vs. how much credit you’re using) and paying off debt will lower your credit usage and increase your credit score. So what about raising your limits to reduce your credit usage? Real talk…this is a strategy you might see recommend in some places but not by me. If you are already having a hard enough time paying down your existing debt then adding more credit is likely to just get you in even more trouble. This is not a long term fix! If you desperately need to raise your credit score to get approved for a mortgage, car loan, whatever, you should take a long hard look in the mirror and ask yourself how essential that item really is. Pay your bills in full and on time, pay down your debts, and you’ll start to see your score grow.
What if you have no credit?
Maybe you’re just getting started on your personal finance journey and need to build up your credit to help your future self. To do this, you first need to get some accounts in your name and adding records to your history. Open a chequing and savings account, set up your cell phone, power, cable bill in your name and always make sure you pay your bills on time and in full. Next, you can look at starting out with a secured credit card. This is like a real credit card, but you put the money down so there’s no risk for the bank. In this day and age (especially with house prices being so high), it’s almost essential to be able to access credit from a lender. Starting to build your credit early and being consistent in paying bills off in full will set you on the right path. It’s much harder to fix bad credit than it is to build good credit from the start.