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Understanding Credit: Why Your Credit History Matters & Tips to Improve Your Credit


Credit history, good or bad, affects yours finances. Financial institutions look at your credit report and credit score to decide if they will lend you money. They also use them to determine how much interest they will charge you to borrow money.

  • If you have no credit history or a poor credit history, it could be harder for you to get a credit card, loan or mortgage. It could even affect your ability to rent a house or apartment or get hired for a job.

  • If you have good credit history, you may be able to get a lower interest rate on loans. This can save you a lot of money over time.

Your payment history is the most important factor for your credit score. To improve your payment history:

  • always make your payments on time

  • make at least the minimum payment if you can’t pay the full amount that you owe

  • contact the lender right away if you think you'll have trouble paying a bill

  • don't skip a payment even if a bill is in dispute

  • Use credit wisely

  • Don't go over your credit limit. Use only a percentage of your available credit. Try to use less than 35% of your available credit.

If you use a lot of your available credit, lenders see you as a greater risk. This is the case even if you pay your balance in full by the due date. To figure out how to best use your available credit, add up the credit limits for all your credit products. This includes:

  • credit cards

  • lines of credit

  • loans

For example, if you have a credit card with a limit of $5,000 and a line of credit with a limit of $10,000, your available credit is $15,000. Try not to borrow more than $5,250 at any time. This is 35% of $15,000.


Increase Length of Credit History

The longer you have a credit account open and in use, the better it is for your score. Your credit score may be lower if you have credit accounts that are relatively new. If you transfer an older account to a new account, the new account will be considered new credit.


For example, some credit cards offer you a low introductory interest rate on your current balance if you transfer it to a new product. The new account you transfer the balance to would be considered new credit.


Consider keeping an older account open even if you don't need it. Use it from time to time to keep it active. Make sure there is no fee if the account is open but you don't use it. Check your credit agreement to find out if there is a fee.


Limit Your Number of Credit Applications or Credit Checks

It's normal and expected to seek credit every so often. When lenders and others ask a credit bureau for your credit report, it's recorded as an inquiry. If there are too many credit checks on your report, lenders may think you're:

  • urgently trying to get credit

  • trying to live beyond your means

Diversity

Your score may be lower if you only have one type of credit product, such as a credit card. It's better to have a mix of different types of credit, such as:

  • a credit card

  • a car loan

  • a line of credit

A mix of credit products could improve your credit score, but make sure you can pay back any money you borrow. Otherwise, you could end up hurting your score by taking on too much debt.


Timelines of Positive & Negative Information

A credit bureau can only keep information about late payments on your credit report for a certain period. The exact time varies by:

  • the type of information

  • the province or territory you live in

  • the credit bureau that created the report

Positive information

A credit bureau may keep positive information, like payments made on time, in your credit report for longer. Positive information will help your credit score.


Negative information

Generally, negative information stays on your credit report for 6 years. However, certain information may remain for a longer or shorter period. Negative information can hurt your credit score.


Negative information can include:

  • missed payments on a debt

  • bounced cheques

  • accounts that were sent to collections

  • judgments (a judgment is a debt you owe through the courts due to a lawsuit. For example, if somebody sues you and you lose, then the debt may show up on your credit report.)

Usually this information stays on your credit report for 6 years.


However, TransUnion keeps this information on file for 7 years in the following provinces:

  • New Brunswick

  • Newfoundland and Labrador

  • Ontario

  • Quebec

TransUnion keeps this information on file for 10 years in Prince Edward Island.


Consumer Proposals

A consumer proposal is a legal agreement set up by a licensed insolvency trustee. The trustee creates a proposal for your creditors where they agree to let you pay off a percentage of your debt.


Equifax removes a consumer proposal from your credit report 3 years after you've paid off all the debts included in the proposal.


TransUnion removes a consumer proposal from your credit report either:

  • 3 years after you've paid off all of the debts included in the proposal, or

  • 6 years after you sign the proposal (whichever is sooner)

Bankruptcy

Generally, both Equifax and TransUnion remove a bankruptcy from your credit report 6 years after the date you're discharged.


TransUnion removes a bankruptcy from your credit report 7 years after you're discharged in the following provinces:

  • New Brunswick

  • Newfoundland and Labrador

  • Ontario

  • Prince Edward Island

  • Quebec

If you declare bankruptcy more than once, then the bankruptcies will appear on your credit report for 14 years.

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©2019 by Reimer Financial Ltd
Mortgage Architects, Brokerage# 316728
Karen Reimer, Mortgage Broker# 315749
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