How to take control of your credit scores
That’s right, scores plural!
If you’re looking for a mortgage, loan, or new credit card, you’re likely thinking about your credit scores. Your credit scores are like fingerprints that tell lenders what your credit history looks like. The higher they are, the more creditworthy you’re deemed. However, credit scores are a bit more nuanced than that. We sat down with Julie Kuzmic, Senior Compliance Officer of Consumer Advocacy at Equifax to get the scoop on credit scores (that’s right, scores plural!)
This article contains excerpts from the Take Back Talk Back podcast, powered by EQ Bank. Click here to listen and subscribe.
How are your credit scores calculated?
If you have a credit card, line of credit, a car loan, or even a cell phone, you have credit scores. Your scores are calculated by Canada’s two credit reporting agencies, Equifax Canada and TransUnion Canada. These two agencies analyze the information in your credit reports (such as how much debt you have, how quickly you pay it off, and the length of your credit history) to determine your scores. Financial institutions will then use the information to determine how creditworthy you are. Credit scores range anywhere between 300 to 900, and the higher the number, the better the score.
It is important to note that you likely have more than one credit score and different financial institutions use different versions. Here’s what Kuzmic had to say, “… not all banks use the same credit score version. [Two different banks are] going to see probably a different number because even though that credit score is being calculated based on the same data in my credit file, there might be slight differences in how much one factor counts in the overall credit score, compared to another factor … There could be a hundred points difference and that’s normal. The banks have a lot of mechanisms to account for the specific score that they use and make sure they’re getting the right data out of it.” She continues, “… there’s no real negative impact to me as the consumer. I am still being treated in the same way and getting access to generally the same types of loans, terms, and interest rates that I would otherwise. They happen to be doing it using different numbers.”
How can you improve your credit scores?
From paying your bills on time to checking your credit reports regularly, here’s a look at some simple Dos and Don’ts to keep your credit scores thriving.
|Automate your bill payments to ensure your bills are paid on time, every time.||Max out your credit cards.|
|Check your scores on a regular basis.||Take out several different loans one after the other.|
|Mix it up – Having a mix of different credit products (i.e. loans, lines of credit, credit cards) is better for your score than having only credit cards.||Use more credit than you can consistently pay off.|
|If you’re waiting for your scores to improve, be patient! It can take time.||Rely only on a secondary card for your credit. Secondary cards on an account under your spouse’s name do not necessarily build credit in your name, even if the physical card has your name on it.|
|Check your credit reports for errors and correct any that may come up by contacting the appropriate credit reporting agency.|
Once you’ve got those scores where you want them, make sure to protect them from potential fraud. When you’re checking your scores, be sure to keep an eye out for any evidence of fraud, like credit products reporting in your name that you did not open. As Kuzmic says, “fraudsters will take the easiest path. If that is noticing somebody’s bank statement in their recycling bin and being able to pull that out and see what they can do with it, then that’s still going to happen.” If you do suspect you’re a victim of fraud, contact the reporting agency as soon as possible. You can place a fraud warning on your account for free, which will stop the fraudsters in their tracks while you work with the agency to solve the case.
When it comes to fraud protection, early detection is key – you don’t want to find out about these issues when you’re applying for a credit product. Some other best practices to be aware of: shredding your personal documents and using different (and hard to guess) passwords for online accounts.
Learn more about credit scores and how to keep yours in top shape by listening to the full episode – Extra Credit: How to Take Control of Your Credit Scores.