Tips on keeping your credit score high and borrowing costs low

The consumer debt level in Canada is record-high with the latest data from Equifax and TransUnion, showing that credit card balances have reached their highest mark since 2019.

Amid interest rates and borrowing costs growth, it’s vital today to keep the credit report in good shape and the borrowing costs as low as possible.

Tip #1: Be disciplined with your credit cards as they have the strongest impact on your score.

Your credit score is a three-digit number that is extremely important when it comes to getting the best interest rate for your mortgage or other types of financing.

Right now, there are five types of accounts that report to Equifax and TransUnion and that can raise your score: credit cards, lines of credit, loans/leases, mortgages, and mobile phones. While all of them affect your score, credit cards’ influence is the strongest.

Your utilization rate (the balance vs. your limit) is also very important. If you make the minimum payment or (even better) pay your balance off in full every month, it will save you from paying double-digit interest rates. Nevertheless, it’s still not enough for getting the highest score.

The deal is that the reporting agencies don’t have live access to your balances. Each bank or lender submits a snapshot of your account to Equifax and TransUnion every 30-90 days. Your situation will be assessed based on the balance you have right at that moment.

So, if the balance exceeds 50% of your limit on that day, it will drastically reduce your score. If you notice that your credit score fell by double or triple digits in a month, it is most likely because your credit cards were maxed out or your balance was more than half of your limit at that moment. In other words, the lower you keep the balances systematically, the better. That’s why you can improve your credit by making multiple payments every month or by using cash and debit more.

Tip #2: Review the full report thoroughly.

With new waves of fraud cases, we’d like to tell you there’s a fee you can pay each month or insurance you can buy to protect yourself from becoming a victim, but unfortunately, there’s only one way to decrease the risk of fraud: regularly review your credit reports in full.

According to the RCMP, last year showed $530 worth of victim losses caused by fraud, marking a 40% annual hike.

Many Canadians tend to focus on their score so much that they don’t check their personal information, inquiries or account details. One way to protect yourself is to systematically check to make sure your personal information is correct with both Equifax and TransUnion. Please, pay particular attention to your current address and phone number.

When you appear on the fraudsters’ radar, they start with stealing your contact information, as it will take you more time to notice the problem and fix it.

You have to know who is checking your file. If you notice a credit-related inquiry that wasn’t initiated by you, call the number mentioned in the report to let them know. The sooner you do that the less damage your score will get.

Another important thing to keep in mind is that most online displays of your credit reports don’t show you all the necessary information on the main screen. You need to click the drop-down arrow or the “view more details” button to get access to the full report.

Tip #3: Review your reports with both Equifax and TransUnion.

Don’t be afraid to contact a creditor or the government. We know it can be intimidating, but contacting them as soon as possible can help you avoid more severe consequences in the long term.

Developing a payment plan will drastically reduce damage to your credit by registering a collection or a judgment on your file. If an agency is trying to contact you, probably they have already registered a collection on your Equifax and/or TransUnion accounts.

If it happens that means you don’t have to pay the full amount owed. With the exception of government debt, it is possible to negotiate a smaller lump-sum payment. The main here is to get a written confirmation that the account has been settled. It’s much easier to dispute any errors or wrong balances when you have the proof.

The best strategy to protect your credit score is checking both the Equifax and TransUnion reports before applying for any new financing. The deal is that some lenders report to Equifax only, others report to TransUnion, and some report to both. It happens quite often that collection agencies, government agencies or a court judgment can appear only in one report. One negative account with a balance is enough to hurt your mortgage application.

Another extremely important thing to pay attention to is reviewing both reports thoroughly in case you have a history of a debt program. A bankruptcy stays on your TransUnion report longer if you filed in Ontario, Quebec, New Brunswick, Nova Scotia or the territories. If you still have an incomplete insolvency in the report, it can stay on your TransUnion file forever until you dispute it.

There could be errors in your report after a debt program is completed, and it will reduce your score, thus not letting you receive the best interest rate for your mortgage. Any account connected to a bankruptcy or consumer proposal should not have any balances, overdue amounts or incorrect information. It’s vital to correct such errors.

Since the pandemic COVID, both Equifax and TransUnion in Quebec allow you to check online credit reports and scores for free. So, there are even fewer excuses to ignore these credit self-defence tips.