IMPROVE YOUR CREDIT SCORE IN CANADA | EASY STEPS TO BUILD CREDIT | Credit Card Guide Chapter 4
hey guys it's Adrian here the Canadian
in a t-shirt and today I'll be breaking down what is a credit score and how to
improve your credit score in 7 steps for Canadians these strategies will be
targeted towards Canadians but the same principles apply in the United States
these seven strategies will help anyone build their credit score even if they
have no credit history, say you're a student or a recent immigrant also these
steps can be achieved entirely on your own you do not need to rely on anyone
else so I won't be discussing things like piggybacking in this video so with
that let's jump into what is a credit score and why should I care? A credit
score is a measure of how reliable you are with your credit and how risky it
would be for someone to lend you money having a high credit score means that
you're more likely to repay your debts and so you'll have a higher chance of
being approved for mortgages loans and credit cards your credit score is a
number between 300 and 900 with 900 being the best in America the maximum
credit score is 850 but in Canada the max is 900 different institutions have a
different view of what is a good score but this is the general consensus
anything above 780 is considered excellent very good is between 720 and
780 fair is between 680 and 720 below average is 600 to 680 and anything below
600 is considered a poor score if you have a credit score above 700 you have a
strong record of being good with your credit and paying off your debts and so
you'll be approved for most credit cards loans and mortgages but if you have a
poor score say 550 you'll be considered higher risk and so you might not get
approved for a loan and if you do get approved they will probably charge you a
higher interest rate to make up for this higher risk plus they won't be willing
to lend you as much money as they would to someone with a strong credit score
but your credit score doesn't only come into play when you're borrowing money
it's kind of like your driving record it's a general metric of your financial
reliability quite a few employers will check your credit score when you apply
for a job if you have a poor score it might hurt your chances of getting that
job likewise if you're trying to move into a new house or apartment the
landlord will often check your credit score if you have a great score you're
more likely to pay your rent on time and so the landlord is more likely
to choose you as a tenant having a high credit score is incredibly important but
it does take time to build so it's important to always follow these seven
steps at any stage of life step number one is to check your credit score this
is so important because the first step in solving a problem is realizing that
you have one in Canada there are two main credit bureaus and each one will
calculate your score a little differently the two bureaus are Equifax
and TransUnion you can request a credit report from Equifax and TransUnion
directly but they will charge you a fee for every request instead I suggest you
use a free service to check your credit score and I recommend Credit Karma and
Borrowell Credit Karma gives you a credit score calculated by TransUnion
and Borrowell gives your score calculated by Equifax TransUnion and Equifax
calculate your score a little differently and so you actually have two
different scores which might have a pretty large discrepancy between them
when you apply for a loan you don't know if the lender will use your Equifax
score or your TransUnion score so it's always important to check both of them
so if you sign up for both Credit Karma and Borrowell you'll have all of your
bases covered both of these services are totally free
they make their money by suggesting or advertising credit cards to you based on
your spending habits both of them are very similar you'll see your overall
credit score a graph showing your score changing over time and your credit
report listing all the loans and credit cards that you have on file and a list
of all the inquiries you made when you applied for a new credit card or for a
new loan this credit report is what you really want to pay attention to you want
to make sure that there are no mistakes in your report and mistakes happen all
the time your credit report might mistakenly say that you missed
last month's payment or it might include a car loan that you never took on these
mistakes are hits against your score and if you never call to correct them
they'll continue to hurt your score without you knowing it that's why it's
so important to check your credit score regularly you don't have to check your
score every day but make a habit of checking every few months to see if your
score is increasing and if there are any mistakes call Equifax or TransUnion and
they will correct it and then you'll see a huge bump in your credit score also
there is no downside of checking your credit score on Credit Karma or Borrowell every time you check your credit score it's considered a soft inquiry and
this does not affect your credit score at all step number two is to stop paying
with cash and start using a credit card when you pay with cash or debit you'll
get any benefits at all you're just spending money and this isn't helping
you build your credibility instead if you use a credit card every single time
you make a purchase and every time you pay your credit card bill in full this
will increase your credit score and this makes sense when you're using a credit
card you're basically using borrowed money but if you use this borrowed money
responsibly and you pay back your loan every month you're proving that you're
reliable and so your credit score increases plus if you spend ten thousand
dollars a year in cash that's just ten thousand dollars down
the drain but if you spend ten thousand dollars a year in credit cards you'll
earn between 2% and 4% in cashback that's $200 to $400 in free money check out my past video on the top five No Fee cash back
credit cards in Canada these are credit cards designed for low-income
individuals and for people with low credit scores so click the pop up the
top right check that video out if you have a higher income and you spend a lot
of money then check out my top five premium cash back credit cards in Canada
with an annual fee these cards offer higher cashback rates up to 4%
so if you spend a lot of money this higher cash back rate makes up for the
annual fee I do have to give a big warning though you have to control your
spending one of the advantages of using cash is that you can't spend more than
you have but with the credit card it can be easy to spend until you've maxed out
your credit limit you must keep track of your expenses and
make sure that you are only spending what you can afford my mindset is to use
my credit card as if it was a debit card even if my credit limit is $10,000 I set
my own monthly limit to $1,000 because I know that's how much I can afford to
spend every month for those of you who are starting off with no credit history
say you're new to the country you might not be able to get approved for a
regular credit card and so you should start off by applying for a secured
credit card a secured credit card works the same way as a regular credit card
but you have to provide an initial deposit before you can start spending
money so if you get approved first fix your credit card with a $1,000 limit you
will have to pay them a $500 or even a $1,000 deposit before you can start
using it this deposit is used as collateral to prove that you're
trustworthy and this money is fully refundable once you cancel your card and
switch to a regular credit card you'll get this initial deposit back and if
you're a student there are tons of credit cards tailored just for you I'll
be releasing a video of my top three student credit cards
Canada very soon using the credit card is the best way to start building your
reputation but now let's look at exactly how your score is calculated in order to
maximize your score Equifax and TransUnion use similar numbers to
calculate the score but this is the breakdown that Equifax uses taken from
Borrowell's website you can see that the biggest chunk of your credit score with
35% is your payment history and this is step number three always pay your bills
on time and in full if you get nothing else in this video drill this into your
head the best way to increase your credit score is to always pay your bills
on time this includes your car loan payments mortgage internet bill phone
bill student loans utilities and your credit card bill if you are late or you
don't pay your full statement balance you will pay huge late fees even up to
25% for credit cards but your credit score will also take a huge hit
even if you only miss a single payment your credit score could drop by 90
points that's huge that's why it's so important to regularly check your credit
report for mistakes also if you miss a payment that hit will
stay on your report for up to six years when it comes to credit cards always pay
your monthly balance in full but if you absolutely can't then pay as much as you
can at the very least pay the minimum payment listed on your statement if you
only pay this minimum amount you'll still be charged with the enormous 25%
interest on the debt you owe but at least your credit score it won't take a
hit also if you know that you won't be able to pay your bill on time don't just
ignore it and hope for the best give them a call and ask if you can get
an extension before the due date if you've been a loyal customer for years
and you have a good history of making your payments the credit card companies
will be understanding and they'll be willing to extend your due date by a
week or two without hurting your credit score there have been times when my
credit card bill was due on Wednesday but I didn't get paid until Friday so I
called the credit card companies ahead of time and explained to them the
situation and they let me pay a few days late it didn't count as a late payment
it never showed up in my credit report and it didn't hurt my credit score at
all the second best thing you can do to boost your credit score is to decrease
your credit utilization your credit utilization makes up 30% of your overall
score and you want to keep this utilization amount as low as possible
credit utilization is the percentage of the total available credit you have that
you have already spent just because you have a credit card
$10,000 limit does not mean that you should be spending this full amount in
fact to increase your credit score it's best to keep your credit utilization
below 30% for every single credit card so if you have a credit card with a
$2,000 credit limit but you've already spent $1,000 this month then you've
already used up 50% at any given moment you want this number to be below 30% of
course at the end of the month you will pay off your statement balance info
bringing your utilization down to zero but until you make that payment your
utilization is still sitting at 50% for a whole month and that is hurting your
score one way to fix this is to request for an increase in your credit limit if
your credit limit increases to $5,000 you still owe the same $1000 amount but
now you're only using 20% of your available credit and this increases your
credit score whenever your credit card company offers to increase your credit
limit accept that offer don't take this as an invitation to spend more keep your
expenses the same but now you have four more available credits and so your
utilization is significantly better another thing you can do is use more
credit cards that way you can spread out your purchases among multiple cards
instead of having one card with a high utilization value you'll have two or
three cards with a low utilization value and so your credit score will increase
considerably I use a combination of cards to max out my total cash back as I
described in my past videos I use one card for groceries and bills one card
for restaurants one card for foreign purchases and one card for everything
else in this way my monthly expenses are spread out between multiple cards on top
of that if I increase my credit limit on these cards each card will have a tiny
utilization amount less than 10% and that significantly increased since my
credit score the next biggest contributor to your credit score is your
credit history and that accounts for 15% of your score this basically means that
your score increases the longer that you've had credit it takes time to build
up a credit score it won't happen overnight the one thing you can do to
improve your credit history do not cancel old credit cards if you have two
credit cards one you just got last year and one you've had for five years the
one you've had for five years contributes far more to your credit
score because over those five years that card has proven that you are a reliable
customer if you cancel that old card you'll lose a lot of the benefits you've
gained over the years plus now your total available credit has
instantly decreased and so your credit utilization has instantly increased and
that will hurt your credit score basically you should never cancel an old
credit card if you've had it for more than two years keep that card and use it
for a purchase every few months just to keep it active if that card it doesn't
have an annual fee there is no drawback to keeping it open the only reason you
should ever close a credit card is if it comes with an annual fee and if that
feed can no longer be justified let's say I had a credit card with a $50
annual fee which gave me 2% cash back on groceries but now I signed up for a
better credit card that gives me 4% 4% cashback on groceries like I
discussed in a previous video there is no reason to ever use my old card the
new one is better in every way and my old card is still costing me $50 a year
in fees so in that case it is worth cancelling that old card even if it does
hurt my credit score by a little bit another way to prove that you are
responsible with credit is to show that you can handle multiple types of credit
having a good mix of credit is far less important than the previous five steps
but it still does contribute 10% of your overall score this basically means that
it's good diversify your forms of credit so instead of just having one credit
card it's good for your credit score if you also have a car loan mortgage
student loans and a personal loan as long as you can make the payments for
each of these loans also having monthly phone bills internet bills and utilities
will further boost your credit score the final factor which contributes 10% of
your credit score is credit inquiries remember in step 1 I said that every
time you check your credit score on board oh well or credit karma you are
performing a soft inquiry and this does not hurt your credit score at all you
could check your credit score every minute of every day and nothing would
happen but if you do a lot of hard inquiries this will hurt your credit
score by a bit a hard inquiry is performed every time you apply for a new
credit card apply for a mortgage or apply for a loan if you make one or two
hard inquiries in a month you'll barely notice it for example last month I
applied for a new credit card that's a hard inquiry but I've only
dropped my credit score by two points but if you apply to 10 different credit
cards over the course of a week that's a red flag that maybe you're
desperate for money and that will probably hurt your credit score by 20 or
30 points it's still not a lot since inquiries only make up 10% of your total
score one thing to note if you're buying a house or a car you're likely shopping
around for mortgages or car loans if you make all these
applications within a span of two weeks the credit bureaus will consider all
these applications as a single hard inquiry and so your score will only drop
by two or three points so don't be afraid to shop around for loans but be
strategic and try to time all your applications within a two week window if
you watched my previous video you know that I love applying to credit cards to
take advantage of their generous signup bonuses and if I don't want to keep the
card I cancel it to avoid the annual fee but I would suggest that if you're
planning on applying for a mortgage or a loan or looking for a new apartment
within the next three months then you can't afford to take any hits on your
credit score and so don't bother applying to any new credit cards until
you secure that loan but if you're living life normally you're not buying a
house soon and you're not planning on any big life changes in the next few
months then I say apply those credit cards and take advantage of those signup
bonuses your credit score might drop by three or four points but that shouldn't
affect you at all and you'll earn yourself $200 to $300 of free bonus money so there you have it those are the seven steps to
improve your credit score in Canada check your credit score regularly for
mistakes ditch the cash and make all your purchases for the credit card pay
all of your bills on time every month that's the most important one keep your
credit utilization below 30% never cancel old credit cards unless they come
with an annual fee don't be afraid to hold multiple forms of credit and try to
limit the number of hard inquiries you make if you follow these 7 steps you
will be increasing your credit score month after month and it's just a matter
of time before you reach that perfect 900 score thanks for watching guys and
be sure to LIKE comment and subscribe if you found this video helpful every
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next video where I'll be breaking down what is a DRIP and how you can use a
DRIP to automate your investment growth thanks everyone and I'll see you guys on
the next episode of the Canadian in a T-shirt bye guys
