How to protect, improve your credit score amid cost-of-living pressures
Last month, the federal government proposed tying rent payments to credit scores, a new way to help Canadians build their credit.
Meanwhile, cost-of-living pressures are impacting some people’s ability to pay down debt and keep their scores in good standing.
A credit score is a three-digit number that comes from your credit report — a summary of your history that’s created when you borrow money or apply for credit for the first time.
The score and report is used by lenders or banks to determine whether it would be risky to loan you money for a car or a mortgage, or even if you’ll make rent payments on time.
“It’s a behavioural prediction of the likelihood that the individual will make their bill payments on time,” Julie Kuzmic, Equifax Canada’s senior compliance officer, consumer advocacy, told Global News.
Equifax and TransUnion are the two credit bureaus which collect, store and share information about how you use your credit.
There are five factors that determine a credit score: payment history, credit history, the mix of credit you have (such as car loan, credit card, mortgage), new credit inquiries, and your credit utilization ratio — the amount you owe versus the credit you have available.
Personal finance expert Barry Choi said making payments on time and a recommended ratio of under 30 per cent can help protect or even improve the score. For example, if you have a credit limit of $10,000, $3,000 or less keeps the ratio low.
Credit scores range from 300 to 900, with a good score averaging about 650 or higher — though it can depend.
While a high score will help in getting approved for various loans and credit, a lower score below that mid-600s benchmark — also known as “subprime” — could lead to being offered a
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