Pay your bills on time and reduce debt to improve your credit score

OTTAWA – If you want to help improve your credit score, it’s a no-brainer that you need to start paying your bills on time and reducing outstanding debt.

But Gary Tymoschuk, vice-president of operations at the Credit Counselling Society, says you should also be careful about the amount of new credit you’re applying for.

“Don’t be out there applying for a Visa and a MasterCard, an American Express, new cellphone service and a new car loan and all these different things,” he said.

Tymoschuk said a flurry of inquiries over a short period of time on your credit report can be “a little bit of a red flag.”

“If you’re looking for a lot of credit, often times that can be a sign of a difficult challenging time in terms of managing your debt,” he said.

A credit report is a record of your past, including your payment history, how much you owe, how much new credit you’ve been searching for, the length of your credit history and the types of credit you have, Tymoschuk pointed out.

“The credit score takes some of that information and other information … and makes a prediction about how you will likely pay in the future, and of course creditors love that,” he said.

Equifax and TransUnion are the two main credit reporting agencies in Canada.

You don’t have to pay to receive your credit report — you can request it by mail, fax, telephone or in person. But if you don’t pay, you’ll have to wait for it to be delivered by mail.

A free version of your credit report will also not include your credit score. For that, you’ll have to pay a fee to find out how the information in your credit report adds up in the eyes of the lenders.

Equifax and TransUnion generally use the same information in calculating your credit score, but each has their own ways of evaluating the data so your score can differ between the services.

Credit scores in Canada range from 300 to 900 points.

A high score means you are seen as a lower risk a becoming delinquent. That might mean a lender might offer you a lower interest rate on a loan and that could save you money.

Arthur Lam, vertical market leader at Equifax, suggests a score over 660 is “good” and over 720 would be “great.”

He adds that knowing your credit score is important, because the financial institutions that you work with are always checking it.

“Knowing where you stand is important so that you have the best access to financial products that you possibly can,” Lam said.

Lam said lenders will take more than your credit score into account when making a decision, but knowing your score could help you understand what kind of negotiating power you have.

“They will also have access to other kinds of information about you, so not everything is always about the credit score and credit report, but it is one of the critical components to how they make decisions,” he said.

Both Lam and Tymoschuk say Canadians should check their credit report on an annual basis to ensure the information is correct, and report any errors to the credit reporting agency.

Tymoschuk says he’s been checking his for years without a problem, but if you have a more common name, mistakes are possible.

“Sometimes if the name is the same or very similar, then there can be issues there,” he said.