Canadian Credit Basics – How to Acquire and Improve Credit Score

Updated on July 18th, 2021

Occasionally hear people say: “I do not like to apply for too many credit cards, because it will affect my credit score”; “Banks often take the initiative to provide a new credit card to me, I refused”; or “most of the best credit cards are canceled, leaving only twelve credit card “and so on. Their credit scores are concerned about is a good thing, but the problem is that most people actually do not have a credit history to find out how it is, or even your credit score is how many do not know that they pay attention to talk about credit record it? Money Sense magazine has an article dedicated to explaining in detail to see more reading.

Credit history

In Canada, credit history is a very important thing, to apply for housing loans, car loans, credit cards, etc. will be affected. So people living in Canada should be aware of. Canadian credit history are generally awarded by the two credit rating agencies, one is Equifax, one is TransUnion. Each includes a sum of borrowed money repayment history will record included. Every query credit score (to apply for financial products) will constitute a Hard Inquiry, commonly known as Hard-Pull, will be recorded. More than two records will be kept for six years, but for Hard-Pull, the bank usually only concerned with the number of Hard-Pull within two years.

  • Credit Score

    In Canada, the highest credit score is 900 points, an average credit score of 700 points. Calculation of standard Equifax and TransUnion not the same. But in general, if a credit score of 700 points or more, substantially all of the credit cards can be applied for. Some credit cards, such as AMEX Platinum Card, Charge Card is due, it requires relatively little higher credit score to 760 points. But this is only a relative parameters, the bank will be based on other data, such as the recent application card number, credit period length of the repayment records.

    Credit score will continue to change, it is necessary to regularly check their credit score, how to query credit history (free and paid) .

  • Hard Inquiry and Soft Inquiry respectively

    Equifax or TransUnion to every query credit records, will leave a record. But only Hard-Pull will affect the credit score, because Hard-Pull In order to apply for a new credit inquiry. The Soft Inquiry, most banks want to understand a customer’s credit history and the amount of product to sell better, or is it individual want to know their credit history, this case will not affect the credit score.

How to calculate credit scores

  • Repayment record

    As the saying goes, borrowed has also, to borrow is not difficult. Credit rating agencies for a person will timely pay back the money and is very focused, so that 35% of the credit score is based on past payment history.

  • Hard times Inquiry

    Credit scores are based on 10% of the number of Hard Inquiry. Banks do not want to see people have a lot of Hard-Pull in a short time, because it seems that people may really need the money. But only “a short time many times Hard-Pull”, and occasionally one or two banks also understand that people need to shop around for the truth. Generally speaking, within two years, six times the upper limit of Hard-Pull better.

    Because there are two credit rating agencies, Hard-Pull record between them are not interoperable, so that, in fact, there may be 12 times Hard-Pull within two years. Therefore, the bank will advance understanding of access to that credit rating agency is very necessary, see: How do I know that between companies and banks use credit scoring company?

  • Use of credit Utilization

    Bank to grant you a credit card, of course, hope that you will use this credit card. The majority of credit cards are canceled, leaving only twelve credit cards, so in principle there is nothing wrong, while maintaining a good relationship with the bank, you do not need to spend energy to manage multiple credit cards bills, less prone to budget Case.

    But the problem is, on the credit score, this is not necessarily a good thing, because on your credit record will seem very short of money. For example: you only have a 10,000 yuan credit card, and because you only use this credit card every month to spend 5,6 thousand. As a result, your use of the credit is 50% -60%, so that other banks will have reason to suspect that your finances. So 30% of the credit score is based on the use of credits Utilization.

    In general the use of credit Utilization best kept at 20% or even 10%. Instead, it is best to apply for more than a few credit cards, the total credits increased. For example, you still spend 5,000 a month, but you have five 10,000 yuan credit card, so your total credit amount is 50,000. As a result, your use of the credit is 10%.

  • Length of credit history

    If a person’s credit history is too short, it makes banks feel less reliable. 15% based on the length of credit history.

    Credit history length is the average length of time that all valid credit cards now, for example, you have three credit cards, length of time was 6 years, 4 years and 2 years, so the average length of your credit is 12/3 = 4 years. And then apply for a new credit card, your credit average length of 12/4 = 3 years. So each to apply for a new credit card, because there will be Hard-Pull and reduce both the length of credit history and lost some of the credit score.

    So apply for a credit card does have a negative impact on the credit score in the short term, but in the long run and have a positive impact on the credit score, because the more the number of sheets of credit card on hand, the less negative impact on future applications for new credit cards. For example, you have a credit card with a 10-year, and then open a new credit card, your credit record length is 10/2 = 5 years. But if you have a credit card in 10 years, affecting four new credit card for you is (4 × 10 years) / 5 = 8 years.

  • Credit score calculation

    So it is based on credit history:
    Payment History (repayment record)
    Amounts Owed (use of credit Utilization)
    the Length of at Credit History (length of credit history)
    New at Credit (Hard Inquiry number)
    Types of at Credit (existing credit species)

    These factors set out for the final credit score.

  • in conclusion

    Thus, to improve the credit score is not entirely without a credit card or a credit card with a centralized, but rather should get used to using a credit card as soon as possible, regular payments. And continue to apply for a new credit card, particularly those with no annual fee credit card (commonly known drawer card, now Bank Teller as frontline sales and account managers are in fact a lot of pressure, encounter familiar Teller or account manager to help him / her a favor opening a new credit card, has been to help others benefit). As a result, the total line of credit to make their credit history length and sustained growth, but also to other banks learned through your credit history is good borrower you are a responsible, easier to get other loans and credit, and lower interest rates.

Some thinking errors on credit history

  • Check credit (Hard Inquiry or Hard Pull) will affect the credit points

    Frequently check credit does affect the short-term credit points, but it will not affect the recording Hard Pull a year later, it will be removed in the credit record after two years, that is a kind of renewable resources, not but a waste. If you are using Borrowell these companies free credit check service, which regarded Soft Inquiry, would never affect the credit points.

  • The bank told me that my credit good?

    Good range is very wide, 700 points -900 points can be regarded as very good, it is best to figure out your credit score.

  • Do not cancel the card to open the longest credit card?

    Credit is calculated according to the length of the average number of years all existing credit cards, rather than simply be calculated as the longest credit card to open the card. So the cancellation of the longest credit card is not a great thing. Really do not like this card, or to the level crossing.

  • Banks said to have been pre-approved my credit card?

    Pre-approved, the English called Pre-approved, there are two cases: one really has approved, usually when you go to open new bank accounts, bank “by the way” to check your credit history (Hard-Pull), and then give you pre-approved. In this case, the bank will tell you how much has been granted credit, such as 5,000, 8,000 or 10,000. Another case is the bank of your credit record Soft Inquiry, to determine your potential customers and give you Pre-approved credit card, when you decide to accept, banks really do Hard-Pull to you to determine how much credit.
    So receive Pre-approved, to ask what will not do Hard-Pull. The easiest way is to ask how many credits granted, if there is already a specific amount, it is mostly already done a Hard-Pull.

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