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Moving to a new country comes with many challenges, and understanding the financial system is one of them. But the myths and misinformation can make it difficult to know what’s true and what’s not when it comes to your score. Therefore, let’s debunk seven of the most common credit score myths to ensure you start off on the right financial foot in Canada.

Key Takeaways

  • There are myths and misinformation about credit scores that can hurt your chances of growing your credit score.
  • Fortunately, there are steps you can take to improve your score, such as reporting your rental payments to a credit bureau and understanding how to impact your ranking factors.

Credit Score Myths In Canada

At a glance, these are seven myths about credit scores in Canada:

  1. Myth: Checking your credit score hurts/lowers your score.
  2. Myth: Carrying a balance on your credit card helps to grow your score.
  3. Myth: No debt = a good credit score.
  4. Myth: High income guarantees a good credit score.
  5. Myth: You have one credit score.
  6. Myth: Paying bills on time = good credit score.
  7. Myth: Increasing your credit card limit hurts your score.

Myth: You Shouldn’t Check Your Credit Score, It Will Hurt It

There are two different types of credit check: hard checks and soft checks. Hard checks are the only checks that could (temporarily) decrease your score. These checks are usually completed when you file for a loan, mortgage, credit card, phone plan, or other accounts like these.

Soft checks, on the other hand, don’t impact your credit. You can safely use apps and platforms (like Borrowell) that keep an eye on your credit score and history without risking your score.  

Myth: Carrying A Balance On Your Credit Card Helps Increase Your Score

Another common myth is that carrying a balance on your credit card will help improve your credit score. What actually matters is your ‘credit utilisation’. Keeping your credit utilisation below 30% is generally recommended, as carrying higher levels can negatively impact your credit score.

Credit utilisation is the ratio of your current credit card balances to your total credit limits. So, paying off your balance in full helps to keep your credit utilisation low and you avoid interest and payment penalties too. 

Myth: No Debt = A Good Credit Score

Credit scores are designed to reflect how well you manage credit. So if you have never used credit, there is no history for lenders to evaluate, which means your credit score may be quite low. 

If you want to have a good credit score, it’s important to have some credit activity, such as a credit card or a small loan, and manage it responsibly by not missing payments or using too much of it.

Myth: High Income = A Good Credit Score

Credit scores are based on your credit activity, such as payment history, amounts owed, length of credit history, new credit, and types of credit used. Your income isn’t a factor used to determine your credit score.

That said, a higher income can help you manage your debts and qualify for credit. So, a higher income can have an indirect influence on your score. 

Myth: You Only Have One Credit Score

In Canada, you typically have two credit scores—one from Equifax and one from TransUnion. These credit bureaus may use different information and scoring models, so your scores can (and often do) vary between them. It’s a good idea to check both scores to get a complete picture. 

Myth: Paying Bills On Time Guarantees A Good Score

Your payment history makes up one part of your credit score, but it’s not everything. The length of your credit history, your credit utilisation, and the types of credit you carry also impact your score. 

Myth: Increasing Your Credit Limit Hurts Your Score

Increasing your credit limit only hurts your score if you max out the card and then make minimum payments. If you have a high credit limit but only use a small amount of it, this can actually help to increase your credit score. 

Steps You Can Take To Improve Your Credit Score

With all those myths busted, here are some steps you can actually take to improve your credit score. Before we dig in, remember that increasing your score is a long-term plan. Be very wary of anyone who tells you that something can have a big impact on your score in the short-term, it’s probably a scam. 

It’s also helpful to understand what factors are used to determine your credit score. While these vary between credit bureaus, here’s a rough guide (according to Borrowell): 

  • Payment history – 35%
  • Credit utilisation – 30%
  • Credit history – 15%
  • Credit mix – 10 %
  • Hard credit checks – 10%

With that in mind, take the following steps to improve your credit score over time:

Don’t Miss Payments. 

While payments aren’t the only factor your credit score considers, it is the factor that credit scores weigh the most heavily. So, it’s important to not miss payments you’ve signed up for wherever possible. 

If you do miss a payment, note that they are typically reported late to credit bureaus after 30 days. So you should contact your lender as soon as possible and make your payment as soon as you can to prevent the late payment from appearing on your credit report.

Use Borrowell’s Rent Advantage Tool

Borrowell’s Rent Advantage Tool allows you to report your rent payments to the largest credit bureau – Equifax Canada. Adding your rental history to your credit report can help to improve your payment history and credit history on your credit report, which can improve your score. Helpfully, Borrowell has made it possible for you to add up to two years of renting history to your credit reports. 

Pay For Your Monthly Expenses On Credit, But Pay It Off Every Month.

If you make purchases each month on your credit card and pay the balance when it’s due, this shows responsible credit use and helps to grow your credit score over time. 

Many credit card companies allow you to set up automatic payments so you’ll never miss a payment.

Tip: When you call your credit card company to set up automatic payments, they will likely ask you if you want to pay the minimum or the full balance. It’s best to pay off the full amount each month. This will help you keep your credit utilisation low, which as we noted above is a factor that’s weighted at around 30% for your credit score. 

About the author

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Stephanie Ford

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Finance, Law and Immigration Writer
Stephanie is a content marketer who has written for law firms (with a focus on immigration and privacy), legal tech companies, and finance professionals for more than 9 years. She earned a Bachelor of Laws and a Graduate Diploma in Financial Planning in Australia. Stephanie is now a permanent resident of Canada and a full-time writer at Moving2Canada.
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Citation "7 Credit Score Myths Newcomers To Canada Should Ignore." Moving2Canada. . Copy for Citation