How Your Credit Score Works (Canada)

Описание: Here's how to increase your credit score in Canada. Get a better interest rate and save thousands of dollars by being on top of your score. Subscribe for more Canadian FInancial videos!
 
As return viewers know, this YouTube channel's goal is to bridge Canada's financial literacy gap through Automation and Education. Nowhere is this more critical than your credit score.
 
Examples of where credit score is used
• Employers check your credit when you are getting a job. Imagine not getting your dream job because you never understood what a credit score is.
• Imagine not being able to rent an apartment because landlords continually reject you based on your credit score.
• Imagine playing thousands of dollars more in interest on your mortgage because you cancelled a no-fee credit card.
 
This video will show you what your credit score is made up of and how you can boost your number.
 
The number ranges from 300 - 900 in Canada. Here are the generally accepted levels of credit scores ranging from low to excellent. You start around 600.
 
Two companies in Canada calculate your credit score, and they do it slightly differently. It is your responsibility to monitor your credit report from both companies and dispute errors. That's right, you could lose your dream job because of a clerical error you didn't see. Are you starting to get why this is important?
 
You can check your credit score for free in Canada with Credit Karma and Borrowell. Each check a different companies score. Knowing is only half the battle; let's jump into how it is calculated and what you can do to game it.
 
Payment History:
 
This one is simple. Do you pay your bills on time? Payment History is worth the most points and is the easiest to boost. Instead of you trying to remember to pay your bills, set them to pay themselves automatically. Set up pre-authorized debits on all of your credit cards, accounts, and loans. This takes 30 minutes to do and guarantees you get 100% in this category as long as you don't overspend.
 
Credit Utilization:
 
Credit Utilization is one the most complicated. Most people in Canada do not understand this metric. It is the easiest to mess up and the quickest to fix. Pay close attention.
 
This metric is the total amount of credit you have available to you versus how much you are using. Stay with me.
 
If the only loan you have is a credit card of $1,000, and you spend $500, your utilization is 50%. That's way too high. If you have two $1,000 credit cards and spend $500, your utilization is 25%. The goal is to keep it as low as possible. Most people advise under 30%.
 
To boost this metric in the short term, pay your credit cards off once a week and keep the balance as low as possible. In the long-term, you need to take out a few credit cards and a line of credit. For which no fee credit cards you should take out, check out my best credit cards in Canada video.
 
Credit History:
 
This one is also complicated and is why you should never close old credit cards. It measures the average amount of time you have had credit. The idea being if you have credit for 35 years, you are less likely to default versus someone with one year of having credit.
 
This is also why people think getting a new credit card is bad for your credit score, and they are wrong.
 
If you have one credit card for 10 years, you have a credit history of 10 years. If you take out a second credit card, your average credit history is now 5 years. That's a considerable drop. Worse, if you cancel a credit card you had for 10 years, you lose that card history on your credit after a few years. If your credit cards have no fees, leave them open and put a dollar on them every year or so to keep them active. 
 
Credit Mix:
 
This one is easy. It is based on the different types of credit products you have. If you just have credit cards, your mix sucks. If you have credit cards and a mortgage, your combination is better. If you have credit cards, a line of credit, a mortgage, an overdraft, and a car loan, you have a fantastic credit mix.
 
Credit Inquiries:
 
When you check your credit score with Credit Karma or Borrowell, it is considered a soft check. This has no effect on your score. When a lender checks your score, it is regarded as a hard inquiry, which hurts your credit score. Knowing this, apply for loans you think you will get approved for and spread them out over several months. One Hard inquire will only hurt your score of 5 points or so for a short time. A few in a row can tank your score, so be careful. 
 
I hope you learned what your credit score is made up of and how you can boost it. Automate your payments, keep a low balance, open multiple credit cards early in life, and smash the like button for the YouTube algorithm.
 
Thank you so much for watching this video. Every view means the world to a small creator like me. I would be overjoyed if you'd join my 14 subscribers in helping me bridge the financial literacy gap in young Canadians.