Credit is the lifeblood of our economy, and your good credit score can create wonderful opportunities for you. Unfortunately, most of us don’t think about our credit score until we apply for a loan or rent an apartment. Your financial health is tied to your credit score, so it you should check it regularly.
How to access your credit score
Check your credit score with both TransUnion and Equifax. These are two credit reporting agencies in Canada. The credit score you get from one credit reporting agency could be significantly different from the other.
Each reporting agency uses its own proprietary scoring model. While generally speaking, they use the same approach, how they rank certain variables impacts your final score. If discrepancies are found inside your credit report, you must contact the agency via their official dispute process. The law requires that any mistakes be removed from your credit report; this will have a positive impact on your score.
So what is your credit score?
Scores can range from 300-900; generally speaking, if your score is 700, you have “good” credit. Anything over 780 is considered “excellent”. The average credit score in Canada is in the 660 range, so you are already doing better than most Canadians.
What you can get approved with a 700 credit score
The first benefit is the boost in self-esteem; there is no denying how great it feels to know you will be approved for just about any type of credit product. Of course, your good credit score opens the door to a lot of opportunties you may not have considered. Remember, a credit score tells people that you are trustworthy paying back debt.
- Want to buy a new cellphone but don’t want to pay cash up front? With a 700 credit score, you can qualify for special offers on tech like the latest Apple or Android smartphone
- Are you thinking about applying for a high-level managerial job? One of the things they will review is your credit score; having a 700 shows that you are responsible and have been for quite some time.
- The cost of buying and owning a car will be considerably lower.The pandemic has made car loan providers more risk-averse than usual. You could get a zero (0%) car loan on select models or even low-interest rates on other cars with your credit score. You are classified as a prime client.
Getting a 700 credit score does not happen overnight. It takes years of managing your credit responsibly to reach that level.
Qualifying for a mortgage and buying a home is much easier
Back in early 2021, you needed a credit score of 680 to qualify for a CHMC insured mortgage. The CHMC insures mortgages where the lender puts down less than twenty percent of the asking price. Without this insurance, most Canadians would not be able to buy a home.
The requirement for this insurance now is a credit score of 600 and a downpayment of five percent. This five percent can come from your savings, the RRSP Home Buyer’s Plan, relatives, you name it. If you are self-employed, your high credit score will help you get mortgage default insurance from CHMC alternative mortgage lenders, which helps self-employed borrowers with good credit buy a home.
If you are not in the market to buy a new home, your credit score will help when renting an apartment. The rental marketplace in Canada is very competitive. Landlords can do credit checks on a potential renter and having a great credit score can give you a leg up over other potential renters.
How to get and keep your 700 credit score
Credit scores are always in a state of flux; this is excellent news if your score is under 700. We’ll show you how to boost your credit score. One of the easiest things to do is to request free copies of your credit report from TransUnion and Equifax. Earlier, we suggested you check out your credit score; this score is calculated based on the information contained inside the report. After that you are going to have to do some analysis.
- Do you have any accounts that have gone past due or are in collections? Accounts that are past due or in collections will negatively impact your credit score. These records are kept for a minimum of seven years. Paying off the collections and bringing your accounts current should be your top priority; we cannot stress the importance of having your accounts up to date. If you want help deciding the best way to pay off your debts, you can use our debt calculator or credit card payment calculator to show you some options.
- What is your Credit Utilization Ratio? This is the total amount of debt you are carrying compared to the maximum credit limit approved. If you had a $10,000 credit limit and your total balance outstanding was $9,000, your credit utilization rate would be 90%! Carrying debt will have a negative impact on your credit score; try to get your utilization rate down to 30% or lower.
- How long have your accounts been open? The longer the accounts have been open, the more influence it has on your credit score. You will need a few years old accounts to reach the 700 mark. The message is this: do not close any accounts.
- What types of credit do you have? Something that cannot be overlooked is the need to have a variety of different types of credit. It is important to have a mix of both revolving credit, like a credit card, and installment credit, like a car loan, to get the best possible credit score.
- Disputing inaccurate information in your credit report is something we touched on earlier, but we need to reiterate the importance of using the proper channels. Erroneous information can drag down your credit score and will stay on your report for up to seven years, so you need to stay on top of these things.
Having a 700 credit score is just the beginning
While having a 700 credit score is great, but you need to start laying the foundation on your journey to a credit score of 800. Remeber, anything above 780 is considered excellent according to Equifax. The theoretical maximum is credit score is 850, but if you can reach 800, you are in the top tier of Canadians.
You will need to be very conservative with the amount of debt you are carrying on your credit cards. Excess debt is a common reason why people are not able to reach the goal of 800. Try to limit your utilization to twenty percent or lower.
Avoid applying for any new credit unless you absolutely need them. It may seem like we are being overly paranoid, but you are on the verge of entering the highest echelon of credit, and even small things will have an impact. Too many hard credit checks in a small amount of time can damage your credit score.
What you can’t get approved for with a 700 credit score
There are some credit cards that are reserved for the most credit-worthy individuals. You could be wealthy, but only those with a credit score well over 700 will be able to access these cards. These cards come with special concierge services and access to exclusive events. You cannot apply for these cars; they are by invitation only. Since you only need 100 more points on your credit report, you should do everything in your power to reach that goal.
Aside from having access to exclusive credit cards, you are going to have the lowest interest rate products. In addition, financial institutions will fight for your business. Companies have a special team of customer service professionals whose single job is to speak with the most credit-worthy customers and invite them to do business with that institution.
The super-high credit score also gives you access to the lowest car loans and mortgage products. This gives you options that other less credit-worthy Canadians will never be able to access. It may seem like a far-fetched dream, but you can get there by following the credit building golden rules.
Recap of the golden rules of how to build your credit score
It takes discipline. It takes time. Here are some of the best ways to get a good credit score.
- Reduce the total amount of unsecured debt you are carrying. You will save money on interest, and your credit score is going to start improving. If you are not sure where to find the cash to pay down these debts, you should create a budget if you don’t have one and start looking for ways to save money. The money saved can be allocated against your debts.
- Don’t close any of your credit accounts. Closing your credit accounts will bring down your score.
- Pay off any bad debts that appear inside your credit report. Bad debts are the number one cause of low credit scores.
- Monitor your credit and sign up for a credit monitoring service.
These steps may sound like a considerable amount of work, but once you get into the routine, it only takes a few minutes a week to monitor things.
The first step is getting your credit score and reports from Equifax and TransUnion. You are going to feel great when your credit score exceeds 750 and approaches 800. It will open doors that only a select few Canadians get to enjoy, so start your journey today.