Personal Finance 101

Four ways to protect your credit score

Good credit is important whenever you need to borrow to accomplish your goals—say, to buy a car, start a new business or put a downpayment on a home. So, how can you keep your credit score with Canada’s credit bureaus (Equifax and TransUnion) healthy, so your loans get approved at the best possible rate?

1. Make all payments on time

Every time you’re late with a payment, the bill issuer may report it to the credit bureaus. Records of late payments remain within your credit report for a period of six years and may lower your credit score.

Avoiding late payments goes for all your bills—from credit cards and utilities to phone, Internet and streaming services. If you disagree with a charge or can’t make a specific payment on time, call the bill issuer and explain your situation rather than simply skipping a payment. Working out a solution together may stop the report to the credit bureaus and protect your credit score.

2. Pay more than the minimum

The minimum payment on a credit card bill is just that—the lowest amount you must pay to avoid missed payment reports to the credit bureaus. But if you pay only the minimum, the rest of your credit card balance will start accruing interest charges and, as interest and new charges are added every month, it will get harder and harder to return to a zero balance. Pay more than the minimum to start getting ahead of your debt. That’s important because how much you owe has an impact on your credit score.

3. Stay safely below credit limits

Regularly bumping up against credit limits is a red flag for credit bureaus that can affect your credit score. So, know the credit limits on each of your credit cards, and then keep your spending well below those numbers. This may mean delaying major purchases until you have the funds to cover them without borrowing. Working with your financial advisor to create a household budget can help you remain prudently within credit limits.

4. Borrow only when necessary

A flurry of loan applications is another warning sign for credit bureaus because it suggests the borrower might be desperate for access to extra money. When you do need to borrow, try to borrow only as much as you need—and no more.

Keep in mind that when lenders evaluate loan applications, they compare how much you’ve borrowed to your income and, if the ratio isn’t reasonable, your loan won’t be approved. So, borrowing less today may help preserve your ability to borrow in the future.

Finally, remember that checking your own credit report doesn’t count against your credit score in any way, and it’s a good idea to do this at least annually to make sure everything’s accurate and keep tabs on your borrowing.