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Credit score tips 2023

How to keep your credit score high and your borrowing costs down

...and the top credit self-dence tips for 2023

It’s no secret that consumer debt in Canada is at record-high levels.

We know this from recent data from Equifax and TransUnion, both of which have been warning that credit card balances are at their highest levels since 2019.

With interest rates and borrowing costs at record highs, it’s more important than ever to ensure your credit report is in good standing.

If you don’t know where to start, fret not. We’ll explore three key tips to ensure your credit report is the best it can be, which will go a long way in keeping your borrowing costs as low as possible.

Credit self-defence Tip #1: Credit cards affect your score the most

Your credit score is a three-digit number that holds a lot of weight when it comes to the interest rate banks will offer you on your next mortgage application and most other forms of financing.

There are currently five types of accounts that report to Equifax and TransUnion that can increase your score: credit cards, lines of credit, loans/leases, mortgages and mobile phones. Although each one of these credit accounts or tradelines affect the score, what you do with your credit card impacts it more than all the others.

The balance versus your limit, also known as your utilization rate, is just as important as your payment history in the eyes of the scoring system. Making the minimum payment is essential and paying your balance off in full every month will save you from paying double-digit interest rates. However, it is not enough to generate a high credit score.

The reporting agencies don’t have live access to your balances. Instead, each bank or lender is responsible for submitting a snapshot of your account to Equifax and TransUnion every 30 to 90 days. Whatever you owe on your credit card when that snapshot is taken, is what you will be judged on.

If the balance is caught at over 50% of the limit, it will dramatically lower your score. If you ever see your credit score drop double or triple digits in a month, it is probably because your credit cards were maxed out or caught with a balance over half of the limit. The lower you keep the balances on a regular basis, the better. This means you can improve your credit by making multiple payments each month or by using cash and debit more often.

Credit self-defence tip #2: Read the full report

With the ever-growing risk of fraud, I would love to tell you there was a monthly fee you could pay, insurance you could buy or a way to eliminate the chance it could happen to you. However, there is one way to greatly reduce the risk of fraud: regularly review your credit reports in full.

The RCMP reported $530 worth of victim losses due to fraud in 2022, a 40% increase from the previous year. Fraud continues to be the number one growing crime in Canada.

Most Canadians are so distracted by their score that they never look at their personal information, inquiries or individual account details. One way to defend yourself is to regularly check to confirm your personal information is correct with both Equifax and TransUnion, especially your current address and phone number.

If a fraudster is looking to steal your identity, they start with your contact information, so it takes you longer to be aware of the issues or to correct the problem.

You should be aware of who is checking your file. If you see a credit-related inquiry or a hard hit that wasn’t you, call the number provided on the report to let them know. The sooner you contact the creditor, the less damage will be caused to your credit.

Most online displays of your credit reports don’t provide all the necessary information to review on the main screen. You must click the drop-down arrow or the “view more details” buttons to see important credit account information. The more often you check, the faster you can get a surprise balance or fraudulent account corrected.

Credit self-defence tip #3: Review both Equifax and TransUnion

Don’t avoid connecting with a creditor or the government. I know it can be intimidating, but talking with them early on can avoid more severe consequences down the road.

Setting up a payment plan will avoid significant damage to your credit by registering a collection or a judgment on your report. If an agency is contacting you, they have most likely already registered a collection on your Equifax or TransUnion accounts, or both.

The good news is, if it is already on your report, there is no benefit to your score to pay the full amount owing. With anything other than government debt, it is possible to negotiate a reduced lump-sum payment. Just make sure you get confirmation in writing that the account has been settled. It makes it much easier to dispute any errors or leftover balances when you have the supporting documentation.

The best credit self-defence tip is to make sure you check both the Equifax and TransUnion reports before you apply for any new financing. Some lenders report to just Equifax, some report to TransUnion and some report to both. It is common that collection agencies, government agencies or a court judgment will only show up on one report and not the other. All it takes is one negative account with a balance or one good credit account missing to delay your mortgage application.

It is even more important to review both reports in detail if you have been through a debt program in the past. A bankruptcy stays on your TransUnion report longer if you filed in Ontario, Quebec, New Brunswick, Nova Scotia or the territories. If an insolvency is showing as incomplete, it can stay on your TransUnion report forever, unless it is disputed.

After a debt program is completed, it is common to find errors on the report that are holding down your score and keeping you away from best-rate mortgage financing. Any account included in a bankruptcy or consumer proposal should not have any outstanding balances, overdue amounts or incorrect narratives. These errors can and should be corrected.

Since COVID, both Equifax and TransUnion allow you to check your online credit reports and score for free. That means there are even fewer excuses to use these credit self-defence tips to protect your financial standing and boost your credit score.

This article was first published in Perspectives magazine.