What credit score do you start with in Canada?
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Few milestones are as exhilarating and terrifying as getting access to credit for the first time.
All of a sudden you can buy things with money that you don’t have, and as soon as you get that power the whole country looks at how you use it.
Your credit score, a very important number ranging from 300 to 900, tells lenders in Canada how trustworthy you are and whether you deserve a good deal on a credit card, mortgage, car loan, or loan. staff.
Keeping your score at the top of the scale is essential, but where do you start?
Where does my grade come from?
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Most Canadians start their credit history with their very first credit card, which they can get on their own at age 18 or 19, depending on the age of majority in their area. Most immigrants to Canada will follow the same path.
As soon as you swipe your card for the first time, your credit card provider, utility companies, and any other creditors will start reporting your behavior to the major credit bureaus. In about six months, these bureaus will have enough data on you to complete a credit report and calculate your first credit scores.
The good news is, you won’t start at 300, the bottom end of the scale. It’s reserved for people who have completely ruined their reputations with missed payments and bankruptcies.
The reality is that you start without any scores.
When the formula is first applied, your credit score will likely be somewhere in the right range, right in the middle. You haven’t had time to do much harm, but neither have you proven yourself.
You won’t have access to large loans and good interest rates until you move up the ladder. here’s how increase your credit score in a record time.
What goes into my score?
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Although Canada’s two major credit bureaus – Equifax and TransUnion – have access to slightly different information and use slightly different calculations, they focus on the same five factors:
Payment history (35%)
This is the most important factor in determining your creditworthiness. Every missed payment, from credit cards to phone bills, can tarnish your credit report for up to six years. Make sure you make payments on time and in full if you want to increase your credit score.
Use of credit (30%)
If you borrow near your limit, you are hurting your score more than you might think.
Credit usage is the ratio of credit used to total credit you have. So if you accumulated $ 700 in debt on a card with a limit of $ 1,000, you would have a 70% utilization rate on that card.
To get a good score, you’ll want to keep your total usage on all of your balances below 30%.
Credit term (15%)
Lenders want to see a long history of responsible borrowing. If you are just starting out, use your first map with this future goal in mind.
And make sure you don’t cancel cards for no good reason. Having an old card on file, even if you no longer use it, shows lenders that you are an experienced borrower.
Credit composition (10%)
Lenders will be happy to see that you’re an ace with a credit card, but what about auto loans, mortgages, student loans, and lines of credit? A diverse borrowing history can show lenders that you are responsible for all kinds of loans.
Serious requests (10%)
When you apply for a new loan or credit card, lenders go through your financial history to see if you are a safe bet or not.
Too many of these checks, called serious inquiries, in a short period of time suggest that you are using credit cards, using new loans to cover old debts, or that you are broke and desperate for money. money.
What if I have bad credit or no credit?
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If you’re having trouble getting a normal credit card, one way to build your history and improve your score is to open a secured credit card instead.
Secured credit cards require you to pay a deposit, which is held as collateral until the account is closed. If you don’t pay your bills, the lender keeps your deposit. Secured credit cards are easy to obtain, but may not improve your score as effectively as a regular, unsecured card.
Another option is a home builder loan, an unusual product only designed to show your ability to make regular payments. The lender actually keeps the amount you “borrow”, only returning it to you after you’ve paid off the balance over time. However, these loans are still not free, so make sure you are prepared for the interest rate.
How do I monitor my score?
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With so many factors affecting your score from month to month, it can be difficult to determine the impact of your efforts. Fortunately, a number of free online services allows you to track your progress.
A popular option in Canada is Borrowell. You will have free access to your Equifax credit score as well as a range of services to improve your financial health.
You will get personalized advice for improve your score, notifications when you miss a payment and personalized offers for loans, mortgages and credit cards tailored to your current credit. You can also check your credit report for any errors that could damage your reputation.
By closely monitoring your credit, you will be able to get your score in the green and unlock money saving rates that will pay off for years to come.
This article was created by Wise Publishing, Inc., which provides clear, reliable information people can use to take control of their finances. Millions of readers across North America rely on the Toronto-based company to help them save money, find the best bank accounts, get the best mortgage rates, and navigate many other financial matters.