The terms ‘credit score’ and ‘credit health’ are used frequently by groups as diverse as banking institutions, car dealerships, mortgage brokers, landlords and beyond. That’s because your score can be used by these lenders, banks, and individuals to decide on a variety of assessments, including whether or not you qualify for a loan, to rent you an apartment, or to provide you with insurance.
In Canada, your credit score is calculated using data from your credit history and portfolio, like your credit age, if you frequently miss payments, if you’ve exceeded your credit limit, and the types of credit you use. These are all factors that will positively or negatively affect your score.
Scores begin at 300 at the low end and rise to 900 (an excellent rating). The average credit score among Canadians sits at 650.
Generally speaking, lenders use your score to assess the likelihood that you’ll be able to pay them back in good time. While most understand that having a high credit score is positive, many people have a few persistent misconceptions about what affects their credit rating and how they can manage their credit scores.
Here, we’ll debunk some of these inaccuracies.
Myth 1. Only Lenders and Financial Institutions Can Check Your Score
Not true! You can absolutely check your score yourself. Checking your credit for yourself gives you a big-picture overview of your history and rating and lets you ensure the information is accurate. The process of checking your score for your knowledge is called a soft inquiry.
Knowing your score makes sense. After all, if you don’t know about a poor credit score, how can you improve it?
2. Poor Credit Disqualifies You from Securing a Loan
While different lenders’ criteria will vary, some may not pay exclusive attention to your credit score — which is good news for those seeking a reliable source for online loans in Canada. Lenders may also inspect other considerations that could affect your ability to repay your loan, such as your current employment status and present income — to name just two factors.
Suppose you’re worried about your credit score, and you’ve experienced an emergency that prevents you from covering your costs. In that case, it’s always worth researching online to see if there’s an option that will suit your needs and situation.
3. Your Credit Score Will Be the Same Between Bureaus
This is also a falsehood. In Canada, there are two main bureaus: Equifax and TransUnion. Your score can vary between these two reporting agencies as not all creditors are accountable to both.
4. Having a Low Income Equates to a Low Score
The scale of your income has little relevance to your credit score. So long as you consistently pay bills on time, your credit score will remain stable and avoid slipping.
5. Closing a Credit Card Account Will Boost Your Score
You’d assume that removing a source of credit might elevate your score. But as mentioned above, the age of your credit source can impact your overall credit rating. By closing a defunct account, you’re shortening your credit’s collective average age and removing a credit source, which may reduce your score.
The Bottom Line
Credit scores are a deep and multi-faceted topic. By debunking just a few of these common misconceptions, we’ve shown how this issue doesn’t need to be scary, or something to hold you back, and that there are steps you can take to improve your credit score.
