(778) 668-9320 scott.dawson@verico.ca

I have spoken before how important it is for Canadians to know their credit and showed you how to request your own credit report for free, but the list provided below goes one step further in showing you how you can improve your credit as well.

While it can pay to shop around for a mortgage my suggestion is to find a mortgage broker you trust and looks out for your best interests from day one and will provide you not only the best mortgage rate but also the best mortgage product for you.

Credit Report

1. Know your score. The score range in Canada is 300 to 900 – the higher the better – and reflects a person’s credit history over the past six years. Only 5 per cent of Canadians have a score of 850 or better. Checking your score periodically can alert you to mistakes as well as credit fraud.

2. Pay your bills on time. Making a credit card payment even one day late will hurt your score. If you’re paying online, send the payment at least three banking days before it’s due to allow enough time for the transaction to be processed. Setting up a small automatic payment to your card issuer each month will ensure you never forget to pay at least the minimum.

3. Never exceed your credit limit. If you’re close to being maxed out, make sure you pay more than the minimum or the interest due could push you over your limit. Going even $5 over your limit could lead to a costly fee from your credit card company and will hurt your score each month it happens.

4. Don’t apply for store credit cards. Even if you’re just after a one-time discount for signing up, these cards, with interest rates as high as 29 per cent, and if you carry a balance can drag down your score.

5. Spread out your spending. The percentage of available credit you’re using each month affects your score, so it’s better to have two charge cards at 50-per-cent capacity each than one that is maxed out.

6. Beware of closing accounts. Even if you’re in a dispute with a lender, make your payments. A missed payment will show up on your credit report, can really hurt your score and is very hard to fix. When closing an account, get it in writing that it was closed with a zero balance.

7. Don’t close unused credit cards. If you have a low-interest card you don’t use, keep it open and use it periodically. Having a zero-balance credit card actually helps to improve a low score.

8. Don’t apply for too much credit at once. Don’t lease a car, sign up for a new cellphone and apply for a loan all in the same month or two. The credit bureau sees this as a sign of financial trouble. Beware, also, of being pre-approved by several lenders before you’re ready to buy. Although you can check your own credit rating without penalty, pre-approvals from lenders count against your score.

What is a Credit Report?

A credit report is a “snapshot” of your credit history. It is one of the main tools lenders use to decide whether or not to give you credit.

Your credit file is created when you first borrow money or apply for credit. On a regular basis, companies that lend money or issue credit cards to you, including banks, finance companies, credit unions, retailers, send specific factual information related to the financial transactions they have with you to credit reporting agencies.

Your Credit Score

Your credit score is a judgment about your financial health, at a specific point in time. It indicates the risk you represent for lenders, compared with other consumers.

There are many different ways to work out credit scores. The credit-reporting agencies in Canada are Equifax and TransUnion. They both use a scale from 300 to 900. High scores on this scale are good. The higher your score, the lower the risk for the lender. In addition, lenders must decide on the lowest score you can have and still borrow money from them. They can also use your score to set the interest rate you will pay. The lower your score typically the higher the interest rate charged on a mortgage for example.

Your Credit Rating

Credit-reporting agencies report the lenders’ rating of each of your credit history items on a scale of 1 to 9. A rating of “1” means you pay your bills within 30 days of the due date. A rating of “9” means that you never pay your bills at all or that you have made a consumer debt repayment proposal to the lender. A letter will also appear in front of the number: for example, I2, O2, R2. The letter stands for the type of the credit you are using.

  • “I” means you were given credit on an installment basis, such as for a car loan, where you borrow money once and repay it in fixed amounts, on a regular basis, for a specific period of time until the loan is paid off.
  • “O” means you have open credit such as a line of credit, where you borrow money, as needed, up to a certain limit and the total balance is due at the end of each period. This category may also include student loans, for which the money may not be owing until you are out of school.
  • “R” means you have “revolving” credit, where you make regular payments in varying amounts depending on the balance of your account, and can then borrow more money up to your credit limit. Credit cards are a good example of “revolving” credit.
  • The most common ratings are “R” ratings. These are known as North American Standard Account Ratings and are the most frequently used. The “R” indicates that the item being described involves revolving credit. If you always pay on time, it will be coded an R1. If an amount was written off because you never paid it back, it is coded R9. The R ratings are a coding system that translates “on time”, “one month late”, “two months late”, etc., into two-digit codes.

  • R0 Too new to rate; approved but not used.
  • R1 Pays (or paid) within 30 days of payment due date or not over one payment past due.
  • R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due.
  • R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due.
  • R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
  • R5 Account is at least 120 days overdue, but is not yet rated “9.”
  • R6 This rating does not exist.
  • R7 Making regular payments through a special arrangement to settle your debts.
  • R8 Repossession (voluntary or involuntary return of merchandise).
  • R9 Bad debt; placed for collection; moved without giving a new address or bankruptcy.
  • Other rating indicators that might be found on a report are “I” for installment credit or “O” for open credit line.

    (Source: Equifax Canada)

    How to Obtain Your Credit Report

    Many consumers are not aware that you can receive a free credit file disclosure from Equifax Canada Inc. via Canada Post.

    Simply complete the Credit Report Request PDF and either mail or fax your application to Equifax.

    Equifax Free Credit Report Request