The federal government has proposed tying rent payments to credit scores as a new way to help Canadians build their credit. 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, which is used by lenders to determine your risk as a borrower. Equifax and TransUnion are the two credit bureaus that collect and store this information. The five factors that determine a credit score include payment history, credit history, credit mix, new credit inquiries, and credit utilization ratio.
Personal finance expert Barry Choi recommends making payments on time and keeping credit utilization under 30 percent to protect or improve your credit score. A good credit score ranges from 650 or higher, with scores ranging from 300 to 900. A high credit score can help in getting approved for loans and credit, while a lower score below 640 may lead to higher interest rates or denial. TransUnion reported that there were about 2.64 million Canadians considered “subprime” borrowers in the first quarter of 2023.
There is also a group known as the “credit invisible,” defined as individuals with insufficient credit history for a credit reporting agency to calculate a score. Equifax reported last year that there were more than three million Canadians who were “credit invisible.” For those without a credit score, it is recommended to start building credit by obtaining a secured credit card or using a secondary lender. Opening multiple new accounts at once could lower your credit score due to the inquiries that come with each. Once you have built up your credit score, it is important to be realistic about your finances and what you can afford.
Experts advise paying bills on time, keeping credit utilization low, and being patient as it takes time for your credit score to improve. It is not uncommon for individuals with healthy credit scores to seek debt relief through bankruptcy or a consumer proposal. Understanding how credit scores impact future decisions and taking steps to improve them is crucial for financial health. By being proactive and responsible with credit management, Canadians can improve their credit scores and secure better financial opportunities in the future.
