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 and truly mean to check it but end up pushing it off. It’s not exactly the most thrilling task you have on your to-do list.
Well, NOT THIS YEAR! Take this as 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 is for your own good. Sometimes mistakes happen. There might be an incorrect entry listed on your credit report, and that can cause you serious grief. The last thing you want is for your bank to discover the mistake when you’re applying for a mortgage, line of credit or new credit card. You could end up getting rejected because of a stupid mistake. Instead, if you’re on top of things, you can find the mistake and fix it before it becomes a problem.
What kind of errors might you find? Your credit report is basically a transaction history of every time you’ve used credit. Anytime you’ve taken out a loan, signed up for a new credit card, paid a bill, etc.
If you miss a bill payment, the company can report this to Equifax, and that entry will go on your credit report and lower your credit score. Usually, companies won’t do this right away. If you ever discover you’ve missed a payment you should call the company ASAP. Explain to them what happened, pay up, and beg for forgiveness. If you don’t have a history of missed payments, they’ll likely let you off the hook and not ding your credit.
Every once in a while though, a company will forget to report an invoice as paid and send that information over to Equifax. This is a huge pain and can be a hassle to get fixed. But, it’s better to know about it now than when you’re sitting in your bank’s office trying to get a mortgage.
Knowing your credit score also gives you a good idea of your financial health. A high score means you have a solid credit history and have been diligent about paying your bills. A credit score of over 700 will 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 shop around for the best possible rate.
How to Check Your Credit Score
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 think it’s necessary. As long as you are checking your report annually, you should be able to catch most errors.
At first glance, it looks like you’ll have to pay to get your info, but you don’t. The Canadian government has ruled 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 looking for what they call the ‘Consumer Disclosure‘ (sneakily inconspicuous). 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 newer alternatives you can check out. Borrowell and Mogo are both online loan companies that have made deals with Equifax to offer Canadians free credit scores. Why? Well, it’s basically free marketing for them. They cover the cost to get their names out there and hope you’ll turn to them for your borrowing needs. I’ve been using Borrowell to keep track of my credit score for the past year, and I’m a fan of their platform. It’s simple, easy to follow and provides precisely the information I’m looking for.
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. You may have to unsubscribe from their marketing emails, but that’s a small price to pay for your free credit score.
What if my credit score is bad?
Ok, so you’ve got your score, and it isn’t where you’d like it to be. Not the end of the world but it means you’ve got some work to do.
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). I’ve been lucky enough never to have to do this myself but have heard it can be a huge pain. Brace yourself.
If everything on the report looks to correct, then your goal is to raise that number. This is NOT an overnight process. Anyone 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. Overdue bill payments can show up on your credit report, and the only way to counteract them is by building up more positive entries.
Next, up would be reducing your debt. Being maxed out on your credit cards, line of credit, etc. is not good for your credit score. Credit usage is a big factor in calculating your credit score. What exactly is that? Well, it’s how much credit you’ve been offered versus how much credit you’re using. If you have three credit cards with a total limit of $30,000 and they’re maxed out, your credit usage is 100%. That’s not good. If instead, your limit is $30,000, but you only have a $5,000 balance, your credit usage is 16.67%. Quite a bit better.
The Wrong Strategy
You might be thinking that if you took out more credit but kept your balance the same your credit usage would go down. Well, technically, you’d be right. But practically, you’d be wrong. This is a strategy you might see recommend in some places but not by me. If you are already having a hard time paying down your existing debt then adding more credit will likely get you into even more trouble. This is not a long-term fix! If you desperately need to raise your credit score 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 credit. 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 a secured credit card. This is like a real credit card, but you put money down first, so there’s no risk for the bank. It works more like a debit card than a credit card.
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.
Do you check your credit score every year? What are your favourite tips for increasing your score and building better credit?