What You Should Know About Credit Scores: Busting 2 MythsApr 18, 2018
For many Canadians, it’s time to shed some light on the myths around credit scores.
Two recent Canadian surveys have revealed a lack of understanding around these numbers. A 2017 TransUnion survey found that over half of Canadians don’t know how their credit score is calculated. A more recent Capital One survey revealed that only four in 10 know their credit score at all. For some, it can feel like your credit score is something off in the distance, impacting your financial life and debt relief but seemingly out of your control.
Your credit score can be a powerful financial tool to help you reach your goals, though. In your long-term plan to reduce your debt load and build savings, having a good credit score can help you borrow money. A low credit score paints you as a riskier lender, and you may be denied credit or assigned a higher interest rate than someone with a higher score.
With that in mind, here are two common credit score myths that, when debunked, can help you better understand the tool.
- Checking your credit score will bring down your credit score.
It’s never been easier to check your credit score. With apps and monitoring tools promising quick access to your score, it’s no longer a question of mailing one of two agencies and waiting for your full credit report.
There is a myth, though, that checking your score will result in your score going down. This is not the case. When you check your score, it’s what’s called a “soft hit” to your account. Only a “hard hit,” such as applying for a loan or credit card, would actually impact your score. You can check your score (and your report) as often as you want with no negative affect to your score at all.
For more on why you should monitor your credit score, listen to this episode of Jessica Moorhouse’s “Mo’ Money Podcast” with Borrowell co-founder & CEO Andrew Graham.
- Making a minimum payment on your credit card doesn’t impact the score.
If you’re only making minimum payments on your credit card, then your credit score could be negatively affected, especially if you’re carrying a high balance on your credit card. Paying off your balance in full every month is the ideal scenario for building a strong credit score (it will actually increase).
In order to understand the full relationship between your credit cards and credit score, it’s also helpful to learn about credit utilization ratios (the ratio of credit balances to credit limits). Approaching the limit on your credit cards can indicate to your lenders that you have an unhealthy relationship with credit. To learn more about credit utilization, read this article from The Balance.
For more advice and tips on the subject of What You Might Not Know About Your Credit Score, listen to this podcast featuring advice from our Licensed Insolvency Trustees (LITs).