How to improve your credit score

Tighter lending just might be on the horizon – is it time to check your credit file?

U.S. lenders have made it more difficult for people to borrow unless they have a top notch credit rating – and some experts say the same thing might be happening in Canada. Mortgage companies are starting to scale back their activities with people with a sub-prime credit history, which means some prospective home buyers could have difficulty getting financing.

One thing is for certain: Canadians are no strangers to debt. In fact, 90 per cent report having more debt today than five years ago, according to a study sponsored by Credit Canada. Yet despite their increasing debt load, over half of Canadians still do not have a personal or household budget and 80 per cent do not know their credit rating, the study found.

Further, half of Canadians aren’t aware of the factors that contribute to a person’s credit rating (or score) according to the Financial Consumer Agency of Canada (FCAC). These factors include payment history, any collection or bankruptcy recorded against the individual, outstanding debts, account history and the type of credit the person uses.

A person’s credit file, which is supplied by lenders, is maintained by a credit reporting agency and is meant to paint a picture of a consumer’s past and current credit situation (typically dating back to the past 5-7 years, depending on the type of information), past reliability at paying off debt and the amount of debt currently outstanding. A credit score is a numerical rating based on the contents of a credit report.

“Many Canadians don’t realize how important their credit reports and credit scores really are. How good your credit score is can determine whether you are eligible for everything from a credit card to a mortgage,” said FCAC Acting Commissioner Jim Callon. “A low credit score can also have a big effect on your day-to-day life by increasing the overall cost of a loan, and even making it more difficult for you to rent an apartment or purchase a cell phone.”

About your credit file
• Your credit report can be obtained free of charge by mail. For faster service, you can also request your credit report through the reporting agencies’ websites, but this involves a fee. (Note: Credit reports and credit scores are currently not available to Nova Scotia residents on the Internet.)

• You should check your credit report at least once a year to make sure all financial information is correct. If you find an error have it corrected right away since it could have an impact on your credit score. Click here to find out how to correct errors.

• Your credit report can also let you know if you’ve become a victim of identity theft. If your report lists suspicious credit card accounts or loans, someone may have taken your personal information to obtain these products fraudulently.

• Your credit score is not affected when you request information about your own credit report. However, the number of inquiries made by potential lenders resulting from various credit card applications can affect your credit rating.