In Canada, Debt, For Beginners, Life, Money

Why my credit score is only “Fair” and how to improve it (if I wanted to)

I check my credit report (free once a year) and credit score (not free) every year.

WHY GET A CREDIT REPORT AT ALL?

To make sure your information is correct and up to date (sometimes companies report that you missed a payment when in fact, you DID NOT), as well as to make sure there aren’t any suspicious accounts you don’t recognize that are open under your name and profile.

Be vigilant on identity theft and get your free credit report EACH YEAR!

It is fairly easy these days to get all the info one needs to hack into your account, such as your mother’s maiden name, your social security number / social insurance number, and so on.

WHO ARE THE CREDIT REPORTING AGENCIES?

These are the agencies that deal with credit reporting in the U.S. and Canada. If you go to check your credit report or credit score, check with ALL of them.

Your information and score will vary from each agency.

In both the U.S. and Canada, by law, you can request (in writing only and by mail) a FREE copy of your credit report.

Otherwise if you are lazy and/or more inclined to go online, you can also get your credit report (and your score) but it’ll cost you about $15 per report, and $8 for the credit score.

About $25 each agency, or $50 – $75 each year.

CANADA:

USA:

  • Transunion
  • Equifax
  • Experian

They’re smarter in the U.S. because they have a one stop form for all 3 credit reporting agencies for your free credit report is here.

TYPES OF INQUIRIES A CREDIT AGENCY CAN MAKE ON YOUR FILE

There are two types of inquiries or requests to pull your profile — the hard and the soft.

HARD CREDIT INQUIRIES

The hard ones are bad.

It means someone is asking to look at your file because you are asking for more money either by having applied for a new credit card or line of credit.

Generally, you want to avoid applying for credit (even if they send you an offer to do so), because it indicates that you do not have enough money to make ends meet and need credit to fill the gap (which is not always the case but I digress.)

SOFT CREDIT INQUIRIES

The soft ones are not shown to lenders.

It’s just a friendly inquiry into your credit profile, and nothing more.

It does not impact your credit score because you are not looking to get more credit with a soft inquiry, it is simply just a request for information.

ODD EQUIFAX SOFT CREDIT INQUIRIES

I also saw these rather odd soft credit inquiries on my profile, and wondered what they were.

Did a little research and this is what I found out:

AUTH CPC ECOA

Third party checking your credit score (either for renting an apartment, or even if you want to forward your address somewhere with Canada Post, which was my case.)

AUTH ECONSUMER REQUE

You checked your own file. I think the econsumer reque(st) says it all.

AUTHENT RECOMBO INC

Third party (Recombo Inc.) checking your file on behalf of a company. In my case, it was Questrade.

MY TRANSUNION SCORE = FAIR AT 727

TransUnion-Credit-Score-727

MY EQUIFAX SCORE = EXCELLENT AT 772

Equifax-Credit-Score-772

WHY DO MY SCORES DIFFER SO GREATLY?

With Transunion, I am speculating that it’s because they rank my score at Transunion against what the highest possible score could be, without taking into account things like my age (which does play a role… more on that later).

I am also thinking that I do not have ENOUGH credit open under my name which hurts my score, but this is by choice, not because I can’t get credit. More on that later.

For Equifax, they seem to be more rational in this respect because perhaps they take into account things like my age, and the fact that I have never, EVER missed a payment on any credit card or loan.

In either scenario, the main takeaway from here is that you MUST check your score and report with ALL the agencies available in your country because as you can see, they each tell a different story.

HOW COULD I IMPROVE MY CREDIT SCORE?

You should only really care about your credit score to be AS HIGH AS POSSIIBLE, completely spotless and as squeaky clean ONLY if you want to apply for a BIG loan like a line of credit or a mortgage. If your score is like mine, and you’re going to rent a place or get a cellphone, a score in the 700s is not going to hold companies back from giving you a place to live or a telephone.

Otherwise, why would you care if it isn’t in the 800 – 900 range? (Unless you are an OCD overachiever of course.)

Now, if I wanted to apply for a mortgage to buy a condo in the next 2 years or so, or take out a line of credit here are the things I know are hurting me:

1. MY AGE IS A FACTOR

I’m too young.

I look like this to credit reporting agencies:

stock-baby-photo-child

Someone who is in their 50s who has had the same spotless record as I have maintained (e.g. never missed a payment), will have a higher score just because of age.

WHAT TO DO FOR A SUPER SPOTLESS CREDIT SCORE

Get old. This one is kind of out of my control, but.. that’s all you can do for this. Wait and age.

2. LOSING INACTIVE BUT OLD ACCOUNTS DID ME IN

I do not like open accounts that I do not use. This means I hurt my own credit score because I closed one of my oldest credit accounts (a card from RBC I got when I was 16 years old). Even though I never carried a balance on the card, I never used it, and frankly never renewed my RBC card, so I made sure to close it a few years ago.

By doing so, I lowered the age of my credit score down to the age of my current credit cards (about 10 years now instead of 15 years), and also decreased the amount of available credit I have at my disposable.

Talk about getting screwed for doing the right thing, eh?

You close a credit card you no longer use, and it effs over your score because it makes your account look younger (less proven), and less trustworthy (lower amount of disposable credit available).

I myself have 2 very new credit cards (within the past year), and one very old one (10+ years). This does not look “trustworthy” to credit lenders.

WHAT TO DO FOR A SUPER SPOTLESS CREDIT SCORE

Stop closing any credit cards and inactive accounts, especially the oldest ones you have (yes, leave them open).

credit-card-visa-money-loan

3. LACK OF CREDIT AVAILABLE

As a result of closing inactive accounts and not applying for MORE things like lines of credit, I have limited the amount of credit I could have at my fingertips.

Instead of having let’s say $50,000 in cards and loans, I only have $20,000.

Funny story, just the other day, TD Canada Trust tried to give me $10,000 in a line of credit and another $10,000 on a credit card, totally pre-approved if I signed on the dotted line.

I obviously declined, but had I taken up on their offer, I’d be $20,000 more trustworthy to credit agencies.

WHAT TO DO FOR A SUPER SPOTLESS CREDIT SCORE

At least 3 years before you want a spotless credit score as high as possible, apply for credit everywhere they’ll give it to you, but only at REPUTABLE institutions (such as banks).

Do not run out and apply for retailer credit cards as they tend to approve pretty much everyone, and carry a bit of a stigma for credit card companies. They are not as solid as let’s say getting a credit card from a bank.

I say to do this 3 years in advance of anticipating getting a loan (e.g. mortgage) because it takes about 3 years for these hard inquiries to request for more credit to be sloughed off your file.

Otherwise, if you were to start applying for a ton of credit now, and then expect in the next 6 months you will also apply for a mortgage, lenders will see all of those hard credit requests on your file and become suspicious and/or give you a much higher interest rate because you’re going to be flagged as “quite risky” to them, having opened so many accounts and asking for so much credit in such a short period of time.

4. CARRYING A BALANCE INSTEAD OF MAINTAINING IT AT $0

It shows on my credit report that I regularly carry a balance of $2000 – $3000 at any given time across my three credit cards.

This is because the credit card companies report once a month, and it is not updated in real-time, so it looks like I am holding a balance each month at the same amounts, when in fact, I am clearing everything at $0 but it just hasn’t been updated.

Speaking of clearing cards, let me be clear that I ALWAYS pay all my cards in full. Have done so since I was 16 and will never stop doing so.

money-bills-usa-dollars-credit-card

I track everything in my budgeting spreadsheet, and when I go to pay my card, I don’t just pay the final balance, I check each amount they have posted to my account against what I see in my expense tracking tool.

If something looks weird or doesn’t add up, I double-check with receipts if I have kept them (I shred them all after 90 days), and then open a dispute if I have to.

In my years of using credit cards, I have only caught ONE error from a bank (PC Financial) when they updated their system and didn’t log one of my payments to a credit card correctly, which showed the payment as missing or outstanding. They resolved it pretty quickly.

All that said, I do carry a balance for the time being on the cards. I do this for 3 reasons:

I am using credit card limit at 0% interest for that month, which means my actual cash sits in a high-interest savings account earning 2.5% in the meantime.

I don’t muddy up or confuse my statements with payments here and there each day, I pay once a month before the deadline and check each transaction as I do so.

I don’t carry a balance into the next month and pay any kind of interest. EVER. Not a single red cent.

WHAT TO DO FOR A SUPER SPOTLESS CREDIT SCORE

Don’t carry a balance at all, and use cash or debit exclusively.

Sounds simple enough right?

Best way to do this is to not use your credit card at all. Use it once a month to keep it active (buy something small like a pack of gum at a grocery store), and clear the amount immediately.

That way, all the lenders will see is a $1.00 balance on your account at the most, if it happens to get reported (if at all).

5. RE-ENTERED CANADA AND STARTED USING NEW CREDIT CARDS

Another factor is that I had closed pretty much every account I had open (as I had mentioned before), but when I re-entered Canada after moving back from the States, I had to RE-APPLY for new credit cards.

Luckily, I kept one credit card from Canada open the entire time (had to use it to pay for car rentals and flights), but nevertheless, this is why I have 2 very new credit cards with short histories, and hard inquiries within the last 3 years, and only one very old one.

WHAT TO DO FOR A SUPER SPOTLESS CREDIT SCORE

As mentioned above, apply for all the credit you want at least 3 years before you want to display to lenders your spotless credit score.

It will take about 3 years for them to clear those hard inquiries off your profile, and in the meantime, you will have a 3-year history on each account to show to lenders how trustworthy you are with credit.

YOU COULD HAVE A BETTER CREDIT SCORE THAN ME IF YOU WERE $100,000 IN DEBT

This is where I roll my eyes at how stupid these credit score things are because someone who has $100,000 open to them as a line of credit, and only makes MINIMUM payments on that debt, is considered more credit-worthy than someone like me, who has essentially $0 in debt, but has less available credit (by choice).

Yep.

Someone like me with a net worth of $200,000, $0 in debt and only $20,000 of available credit to her name (BY CHOICE), is less trustworthy and creditworthy than someone who has $100,000 in debt (maxing out all their available credit), and pays only the minimum on time, each time.

stock-credit-usd-bills-money-cash-chain

It’s all cuckoo to me because the credit score does not take into account your true situation at all.

ER… SO ARE YOU GOING TO TRY AND GET A SPOTLESS CREDIT SCORE?

No. I only get my credit score checked out of curiousity.

I don’t plan on applying for a mortgage any time soon, because as I said before, if I buy a house, it’s going to be in cash.

If you don’t want to apply for credit, and your score is reasonably good (like mine, it is “Fair” or in the 700s), then you have nothing to worry about in terms of your credit score. It’s a useless number to you.

A score in the 700s is enough to get an apartment, a car rental, a cellphone and even possibly a car loan.

The only time you need a spotless credit is for BIG loans like large lines of credit for a business or as I said before, a mortgage.

Otherwise, what do you care? (By you I mean I.)

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Sherry of Save. Spend. Splurge.

Am my own Sugar Daddy. Am a millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I have 11 side incomes that are on track in 2020 to make me $50K - $75K. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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16 Comments

  1. aliona

    I have one credit card that I pay off every month and never charge more than 20 percent of its limit. My house, vehicle, etc. are all paid for. I spend very little as I need little. I have been frugal all my life and now I find a credit score of 500. I don’t owe a soul and am very careful with my money. I just don’t understand why I am penalized for that..I contacted a credit scoring firm to figure this whole thing out for me but got turned down several times not until I read about a well recommended private investigator..He is all over the internet and nobody has ever spoke negative of him…I took a leap of faith and gave him a try..He boosted my scores 780 and I can’t thank him enough..He’s blunt and honest..And he respects whatever agreement you make with him..You all should give him a try for your credit score boost..His contact details are cagedpeter at fastservice dot com

    Reply
  2. Lila

    Some finance professionals like Dave Ramsey don’t advocate carrying credit at all because of the problems you mentioned. I do admit that I’ve been thinking of cancelling my one credit card because I seem to be doing fine 99% of the time with my debit card. I try not to carry a balance on my cc.

    Credit Karma dot com gives you a free credit score, you have to put up with a lot of ads for credit card offers and they use the Transunion credit score.

    Reply
    1. save. spend. splurge.

      I Iike my credit card because I’m responsible and I like getting the 1% cash back!!

      Reply
      1. Lila

        @save. spend. splurge.:

        Yes I get rewards with mine too and actually I like to have one cc “just in case.” 😀

        Reply
  3. SarahN

    This is all so foreign to me! To the best of my knowledge, you can’t check your credit score in Australia. And who cares really… I mean I don’t care. I have a credit card, and I got a mortgage. Yes, I got lots of questions to get them to loan to me, but after two years, they were so keen to sign me for more debt etc. Cause I didn’t default and was never late etc etc.

    Reply
    1. save. spend. splurge.

      Well here it is more how much debt is available to you that is also a driver…

      Reply
  4. Jen @ Jen Spends

    I’m not sure if it’s an option for Canadians, but Mint.com now offers a free credit score that is updated every few months. It looks like they use Equifax. Mine is 785 now, but a couple years ago when we bought our house, my husband and I were both in the 800s. The thing that hurts my credit score a bit is the fact that the credit card we used for our bills has a rather low limit, and we approached that limit every month. We’ve since switched to a different card with a higher limit, so we’ll see what happens. But, whatever, like you we pay it off every month, so it doesn’t matter.

    I’ve come a long, long way. My credit used to be in the toilet due to late credit card payments and a medical bill that went to collection. This was due to letting someone else (Dad) manage my finances when I was in college. Like you said, good credit scores don’t always reflect healthy spending habits, but I am proud that I took control and built mine back up.

    Reply
    1. save. spend. splurge.

      That reminds me that I should increase my credit limit too

      :)you’ve really come a long way!!

      Reply
  5. Emily @ Simple Cheap Mom

    I checked a few years ago, nothing was amiss and my score was like yours, not phenomenal. I think it hurts us that we don’t have installments loans, like car loans. We use our credit cards like you, but pay them off in full each month.

    Even without the stellar spotless score, the banks have always offered us the best rates. The banks usually have their own measures of credit worthiness, they’ve always said that I had excellent credit, even if my credit score said it was only fair or good. Even more if you have 20% to put down, it seems like they’ll do anything to get you to sign.

    Reply
    1. save. spend. splurge.

      Good to know. I have a feeling that my score is great but not perfect because I am young and I don’t really carry debt, so I can’t “prove” I’m credit worthy.

      Reply
  6. StackingCash

    In the United States, your credit score can also affect your insurance rates. Insurance companies think your credit score reflects the risks involved in insuring you. For me this is very important because insurance is expensive and with a bad credit score could increase my insurance premiums dramatically.

    Reply
    1. save. spend. splurge.

      I think the same applies here. I gave my insurance company access to my credit score.

      Reply
  7. MattNY

    I was using my debit card for pretty much everything, until Home Depot and Target and a bunch of others got hacked. I found out that my bank says if I don’t report the debit card loss within 20 days (I check my account once a month to reconcile) they aren’t liable for any theft! Consumer regulation limits my credit card liability to $50 total, no matter how much or how long ago.

    I did get a replacement debit and credit card a few weeks ago, but I am using my cc now for everything, and setting up an automatic monthly payment of $50 on the cc. This will make sure I am covered even if I miss a payment. It sucks to pay the extra interest, but better than possibly losing thousands.

    Reply
    1. save. spend. splurge.

      The US has that notion of a debit/credit card and we have only just recently rolled that out here. I tend to only use my credit card for the rewards but that liability thing helps too. I can report the card at any time.

      Reply
  8. moneystepper

    I understand getting your credit report to check that there isn’t any blotches on there that shouldn’t be.

    But, why do you pay for you credit score each year?

    If you are simply doing it out of curiosity, and by your own admission you don’t really care, this seems like you’re wasting a bit of money, no? Yes, its not much, but every penny counts, right?

    Reply
    1. save. spend. splurge.

      Mostly out of curiousity but also because we plan on getting a condo in a year or so so I need to know how I rank with creditors.

      Reply

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