Understanding your Credit Score

By Rubina Ahmed-Haq on July 23, 2019 No Comments
Understanding your credit score

Understanding your credit score is pivotal when it comes to financial literacy. When it comes to applying for credit, lenders typically look at your income, assets, debt, and credit score. While most Canadians understand the first three items, credit scores remain a mystery. According to an Ipsos survey, 57 percent of Canadians have never obtained their credit score.

In this article, we’ll look at how to review the information from your credit score, understanding your credit score, and simple things to improve your credit score.

How to Review Your Credit Score

Keeping a close eye on your credit score is helpful. Imagine applying for a mortgage, only to find out your credit score is too low to qualify. You’d be devastated. Review your credit score ahead of time.

What Is a Credit Rating?

Your credit rating is a letter followed by a number. The number scores range on a scale between 1 and 9. The lower the number, the better; ideally, you want a credit rating of ‘1’ on all your credit accounts.

This means that you pay your bills on time. Meanwhile, ‘9’ means that you don’t pay your bills, you’ve filed for bankruptcy or the debt is with collection agencies.

Next to the number is a letter. The number indicates types of credit.


Installment loan. This is a loan with a fixed payment amount. Examples include personal loans, car loans, and student loans.


Open credit. This is where you can borrow up to a credit limit. The most common example is a line of credit.


Revolving credit. The most common example is a credit card.

If you have a credit card that you always pay on time with perfect payment history, you should have an R1 rating and so on.

Why You Should Check Your Credit Report

If you think you have a perfect credit history, you may think there’s no reason to check your credit report. However, it’s still worthwhile to do so.

If there’s an error, you may be denied or have to pay higher interest rates.

Regularly reviewing your credit report is also an excellent way to avoid becoming a victim of identity theft. It’s a lot better to spot an error before applying for credit. That way, you have plenty of time to correct it.

Checking Your Own Credit Score

Two main credit bureaus provide Canadians with credit scores: Equifax Canada and TransUnion Canada.

You can obtain your credit report for free from Equifax and TransUnion delivered by mail. However, free credit reports don’t include your credit score.

Other services offer you your credit score for free. While it can be handy to know the direction your credit score is heading in, you’ll want to take it with a grain of salt. These credit scores are for educational purposes only.

Understanding Your Own Credit Score

Your credit score is an all-important number lenders care about. It affects many things in your life: your ability to buy a home, get a job, and rent an apartment. Ideally, we’d all know a lot about credit scoring.

Not everyone learns about credit in school. In this section, we’ll help you gain a better understanding of your credit score.

Steps of Credit Scoring

Have you recently applied for a loan, but they rejected your application? Maybe you reviewed your credit score, and it’s lower than you thought. Here are some steps to improve your credit score.

Make your payments on time. The simplest way to boost your credit score is by making your debt payments on time. This includes your cellphone and utility bills.

Don’t apply for credit unnecessarily. Applying for too many credit accounts within a short period can lead lenders to consider you high-risk.

Avoiding maxing out your credit cards. It’s a good idea not to go any higher than 50 percent of your credit limit. Next to payment history, credit utilization is a factor that carries a lot of weight in credit scoring models. If you have a credit utilization over 50 percent, it can drag down your credit score.

How Does Bad Credit Impact You?

Here are some of the ways a bad credit score can impact you.

  • It can make it more challenging to get a mortgage.
  • You may not be able to get the best interest rate.
  • Your job offer could be rescinded.
  • Your rental application could be denied.
  • You may not be able to rent a car.

It’s a good idea to check your credit score at least once a year or several months before a major financial decision. For example, if you’re planning to buy a home, check your credit score six months in advance. That way, you’ll have plenty of time to fix any errors on your credit report.

Knowing where you are financially can prepare you for a significant monetary decision and avoid any last-minute credit use.

Simple Things to Improve Your Credit Score

The major credit bureaus Equifax and TransUnion tend to be secretive when it comes to telling us precisely how credit scores are calculated. If your credit score isn’t where you’d like it to be, improving it can seem like a daunting task.

Here are some simple things you can do to improve your credit score.

Don’t fall behind on your payments

Ideally, you’ll be able to pay your bills in full. However, if you can’t do that, at least make your minimum payment by the due date to keep your credit in good standing.

Don’t have too many credit accounts

Having too many credit accounts open that are close to being maxed out is a red flag to lenders that you may be having difficulty managing your credit.

Get in touch with your lender early

If you anticipate having difficulty paying a bill, don’t wait until the lender reaches out to you. Be proactive and reach out to the lender. You may be able to come up with an alternative arrangement where you can avoid dinging your credit score.

Don’t skip making a payment

Even if you don’t agree with a bill, it’s usually a good idea to pay it. You may be in the right, but it will still show up as a blemish on your credit report if you skip paying it, and it could hinder your ability to obtain credit in the future.

Build your credit

Avoid closing old credit accounts that are in good standing. The longer you have a credit account open and in good standing, the better it is for your credit score.

Avoid taking too many hard inquiries

A hard inquiry is when a lender reviews your credit report. This counts towards your credit score. Any lender that views your credit report will see it.

Soft inquiries appear on your credit report, but only you’re able to view them. Unlike hard inquiries, they don’t impact your credit score. The most basic example is checking your credit report. This won’t affect your credit score.

How to Repair Your Credit Score

Is your credit score where you want it? Before you panic, take a closer look at your credit report. What is causing your credit score to be lower? Once you figure out why you can take steps to repair your credit score.

Seeking Out the Help of a Credit Repair Service

Some companies offer to fix your credit report. These services are most often reaching out to people with bad credit scores. The companies promise to help you get a good credit score and save you money through lower interest rates.

Any company that promises to repair your credit score instantly is a scam. The only way to improve your credit score is by making your payments on time over time. Fixing errors on your credit report is free for you to do, so there’s little benefit in seeking out help from these companies.

TransUnion says on its website that “TransUnion will not provide any additional services or treat a consumer differently because the consumer has retained and paid a credit repair company. Whether you launch a dispute yourself or through a credit repair company, the outcome of the investigation will be the same.”

Filing a Dispute

Equifax has a form that you can complete online. The other major credit bureau TransUnion has a PDF you can load and complete on its website.

When completing these forms, make you’re explaining yourself and the issue correctly. It’s a good idea to do your investigation ahead of time. Student loans and store credit cards that appear on your credit report may come with credit account names that you don’t recognize.

The good news is that both Equifax and TransUnion are required to look into any disputes that you file. However, just because you file a dispute, it doesn’t mean they’re required to remove an error from your credit report unless you can prove it.

What Do You Do Next?

If all goes according to plan, Equifax and TransUnion should correct the error within a reasonable time frame, and there will be nothing further you need to do.

If you see some suspicious credit inquiries that you don’t recognize, you might want to consider signing up for credit monitoring services. Both Equifax and TransUnion offer them. Going forward, whenever there’s a credit inquiry for you, you’ll be notified. That way, you can report it if it’s fraudulent right away and limit the damage.

Three Ways to Improve Your Credit Score Without Taking on Debt

Credit is essential to our finances. If you do an excellent job of managing it, it can help you obtain financing for a new home, car, or business. The good news is that it’s never too late to learn about credit. The sooner you learn how to manage credit properly, the more successful you’re likely to be in your financial life.

Here are three ways to improve your credit score without taking on debt.

Establish a Credit History

It’s essential to take the steps early on to establish a credit history. By building a credit history early on and using it responsibly, it can help you later on in your financial life. You can do that by signing up for a credit card early on and using it responsibly. That means paying off your balance on time and in full every month like clockwork.

Even if the card doesn’t have the lowest interest rate or it’s a secured credit card (you’re required to make a deposit), as long as you make the payments on time, it doesn’t really matter. The benefit to your credit score will outweigh anything else.

Borrow What You Can Afford

Treat your credit card like cash. Only charge what you can afford to pay at the end of the month. By doing this, this will show future lenders that you’re responsible when it comes to credit.

You’ll find it a lot easier to get a new credit card or borrow money when you exhibit good financial behaviour and have a good credit score. You’ll also avoid paying costly interest.

Carrying a Balance the Right Way

If you carry a balance on your credit card, although it isn’t ideal, it’s not necessarily a bad thing in terms of your credit score. If you have balances owing on several credit cards, don’t make the mistake of skipping the payments on your other credit cards and paying a single large sum on one.

While that will certainly help lower the amount you owe on that one card, it will result in a blemish to your credit score. Always make at least the minimum payments on all your credit accounts. Once that’s taken care of, you can make payments on your other credit accounts with any money you have left over.

Still having trouble understanding your credit score? Call us today to learn more about credit counselling and other tools to get on top of your finances.



Rubina Ahmed-Haq

Rubina Ahmed-Haq is a Journalist and Personal Finance Expert. She is the go-to money expert in Canada for several media outlets. She regularly appears on CBC Radio, CBC News Network, CTV Your Morning and Global Toronto. She writes for Homes Publishing group,, and has her own website Rubina began her career as a broadcast journalist in 1999. Since then she has covered everything from local news, foreign affairs, politics, sports and of course finance! As a business reporter she has worked for CP24 from the Toronto Stock Exchange and reported for BNN. Her work has also appeared in the Toronto Star and various other magazines. She has a Bachelor of Arts degree from York University and is an alumna of the Humber College post graduate journalism program and holds the CSC designation. Her goal is to help Canadians find easy ways to manage their own finances. Follow her on Twitter @alwayssavemoney.

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