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Does Checking your Credit Score Lower it?

    A good credit score is extremely important – a fact that many of us do not learn until it is too late. It is important for more reasons than just being approved for more credit cards. A person’s credit score can be important when applying for a job because Credit History may be considered by some employers to determine personal responsibility. Credit History may also affect your interest rate for everything from buying a house to signing up for a cell phone service plan.

    Credit scores are built on the model issued by FICO (Fair Isaac Corp.).  Scores range from 300 (low) to 850 (high).  Anything above a 750 is considered excellent credit.  FICO is a USA based company; Canadian banks also use this scoring for loan considerations. Other providers of Credit Scores in Canada include Credit Karma and Borrowell.

    How to Check Your Credit Report

    There is no doubt that you already have a credit file maintained by both Equifax Canada and TransUnion Canada if you have ever accessed a student loan, owned a credit card, or created a line of credit in the form of a bank loan.

    It is from your credit files that each of these two credit bureaus extract your credit report to calculate your credit score, which can be a figure between 300 and 900.

    If you bank with Scotiabank in Canada, you can access your TransUnion Credit Score within Scotiabank Online Banking for no additional charge. Accessing your TransUnion Credit Score, to simply read it, will not impact your credit score.

    TransUnion Credit Scores range from 300 to 900 with 300 to 692 as Poor, 693-742 as Fair, 743-789 as Good, 790-832 as Very Good and 833-900 as Excellent.

    Negative records can remain on your credit report from 6 to 14 years depending on your Province.

    When you apply for credit, financial institutions can open an ‘Inquiry’ into your credit history and these inquiries can impact your credit rating. An official request for your credit history is called an ‘Inquiry’. An official Inquiry will remain on your credit report for six years.

    What to Check for on Your Credit Report

    Once you have actually ordered and received your credit report, you will need to know what to look for to see if you need to clean up your credit report and dispute any misinformation.

    Spotting identity theft is the first and foremost reason that you should be checking your credit report, but knowing that your creditors are reporting accurate information is crucial as this directly affects your credit score and any future lending decisions.  Plus, you can reassess your financial loans and check where your loans stand.

    1) The first thing you will be looking for is sign of identity theft. Look for credit accounts that are not yours and review each one that is listed. Make sure that they currently belong to you or belonged to you in the past. If you find accounts that you are unaware of, or do not believe are yours, it is highly recommended that you highlight them and go through the dispute process in order to remove them from your credit report as they could be negatively impacting you.  In addition to this, look at the inquiries section and make sure that the businesses that are listed are businesses that you either have credit with or had in the past. If you find inquiries that you have not made, this may be a sign that someone is trying to open accounts in your name.

    2) Make sure that your credit report has the correct information on it and that your address and employer are correct. Always verify the account history on your credit report and look at the detailed payment history of the last 24 months for each account. Make sure that your payment history is correct as this may impact your credit score, if it is not.  In addition to this, always check to make sure your accounts are open, as closed accounts that still have a balance, will negatively affect your score. Also check for negative information that is outside of the credit reporting limit and make sure that all debts are repaid.

    3) Finally take an inventory of your debts and total them up. This way you can see how much debt you have versus how much income you have and can create a “How to Get Out of Debt” plan if you have too much debt.  Always take a look at these things once you receive your credit report as these areas can help you correct information and dispel disaster that may occur if you have negative information or too much debt.

    But a lot of people are confused by what exactly makes a good credit score.  There is no one individual formula for getting excellent credit.  However, there are a few common traits of people who have good credit.

    Keep Balances Low – Low Utilization Ratio

    One of the most important factors in determining an overall score is the debt-to-usage ratio. This is a metric of how much credit you’ve been given compared to how much you’re using. While it might seem counter-intuitive to think that you’re not supposed to use all of that credit, it’s true: maxing out your credit cards will hurt your score.

    Depending on how the card issuer reports, it could harm your credit score even if you pay it off in full when the statement comes.

    Ideally, you want to maintain around 30% credit usage and no more. This means that if you have a $1000 credit limit on your card, you should strive not to charge over $300 on it.

    Do not Close Accounts Unless it is Necessary

    Old accounts affect your credit age (in a good way) so closing them will harm your credit score. This will also affect your debt-to-usage ratio in a bad way, as closing accounts reduces your overall available credit. 30% of less is, well, less…which means you will have to keep your balances even lower.

    Be Prudent with New Applications

    Credit inquiries, a result of applying for new accounts, do affect your score, but that is only one part of the equation. When you open a new account, it impacts your credit age. Newer accounts hurt your score, and credit age makes up 15% of the overall rating.

    Your credit report(s) contain all information relating to all the lines of credit your have created over the last six years including your credit card usage. The report indicates whether you regularly pay your debts in time, the amount you owe, your credit limit and any company or organization that has accessed your credit file. Each of the credit lines you have created (accounts) has a letter and a corresponding number.

    While the letter (R) denotes a revolving debt, the letter “I” denotes an installment account. The number (which can be between 0 and 9) denotes your credit worthiness. While the number “0” indicates that you are new into the system and can therefore not be rated, the number “9” serves to indicate that you are either a bad debtor or have a bankruptcy in your history. The rating of “RI” is what you need to have since it serves to show that you pay your credit card bills in time or “As Agreed”.

    The fact that your credit report remains “Live” for a period of six years (a period in which you are most likely to create a line of credit) makes it very necessary that you access your credit report from both Equifax Canada and TransUnion Canada at least once a year, free of charge, with the aim of checking in order to address any mistakes that can damage your credit report and score.

    You can never rule out finding mistakes in the form of errors in your credit report(s). While some errors happen to be minor data-entry errors, others can be very damaging. These “errors” may occur due to identity theft: someone, somewhere, has stolen your identity to undertake massive shopping.

    In normal circumstances, you will receive a dispute form along with your credit report. This is the detailed form where you give information supporting your dispute.

    In case of any dispute, you are obligated to send the duly completed form back and attach relevant documents that support your position. The responsibility is with the credit bureau to contact the financial institution, credit card company or credit union that submitted wrong details. Correction of your credit file entitles you to a copy of your new credit report.

    Christopher - BSc, MBA

    With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.

    Christopher - BSc, MBA

    Christopher - BSc, MBA

    With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.