Credit Score In Canda
As Nigerians, not a lot of us have to worry about credit scores and due to this have limited knowledge about what credit score means and what it entails. We do not exactly run an economy that deals with a lot of credit score-related situations and so because of this when the average Nigerian travels out of the country, and migrate to other places, it is quite possible that due to ignorance they end up making bad credit score mistakes.
Your ignorance will cost you a lot if you do not learn. You do not have to learn the hard way. As a Nigerian immigrant relocating to Canada, it is essential that you learn all about the Canadian credit score, so that you do not miss out on the advantages that having a good credit score will bring you.
What Is A Credit Score?
According to Investopedia, “a credit score is a number from 300 to 855 rate a consumer’s creditworthiness. The higher the score, the better borrowers look to potential lenders.”
“A credit score is based on credit history: the number of open accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.”
Your credit score is a three-digit number that comes from the information in your credit report. This credit score shows how will you manage credit and how risky it would be for a lender to lend you money.
For Canada, the two main credit bureaus are TransUnion and Equifax. These companies keep track of how you use your credit. According to Equifax, a good credit score in Canada is usually between 662 to 724. Credit scores between 725 to 759 are going to be considered good and credit scores above 760 are generally considered to be excellent credit scores. A credit score can generally range between 300 to 900 and you should know that the higher your score, the better your credit rating.
Improving Your Credit Score In Canada
- You need to limit the number of credit applications or credit checks
- You need to keep an eye on and monitor your payment history
- Making use of different credits types
- Increasing the length of your credit history
- Using credit wisely
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You Need To Limit The Number Of Credit Applications Or Credit Checks
If you’re living in a country like Canada, it is expected that you will from time to time apply for credit to be able to sometimes make a big purchase. Enquiries into your credit report are known as credit checks and this happens when lenders and others ask a credit bureau for your credit report, now you should note that if there are too many credit checks in your credit report, lenders may assume that you are trying to live large live beyond your means or you are seeking credit urgently.
A good tip for navigating this is to try to get your credit quotes from different lenders within a two-week timeframe If you are looking to make a big purchase because these inquiries will count as a single enquiry in your credit history. Another tip is to reduce the number of times you apply for credit, you should only seek to apply for credit when you really need it and not just for frivolous purchases. Examples of some of the best times to apply for credit are if you’re trying to purchase a house and put a down payment on the house, you are trying to buy a car etc.
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Monitoring Your Payment History
One of the most important factors for your credit score is how consistent you are with your debt payment. To have a good payment history, you need to ensure that you don’t miss out on your payment even if a bill is in dispute, it is essential that you always make your payment in a timely manner, reaching out to the lender if you foresee a problem with paying the bill and finally, you need to ensure that if you cannot pay the full amount, you at least pay something.
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Making Use Of Different Credits Types
Even though you should be very careful not to take on too much debt, it is advisable to have a mixture of different credit types which could be a house mortgage, a credit card or a car loan. The different credit products will do good to improve your credit score.
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Increasing The Length Of Your Credit History
It Is better for your credit score if you have a lengthy credit history. One of the ways you should do this is to consider keeping an older account open even if you don’t use it, You should try from time to time to keep it active to prevent your credit score from being lower and credit accounts that are relatively new will not increase the length of your credit history.
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Using Your Credit Wisely
One of the mistakes a lot of Nigerians or just immigrants in general make when they relocate to countries that run on the credit economy, some of them see it as free money and go to town with these credits, spending lavishly, living above their means and not even taking time to understand what a credit score, what a credit history is, what all of this means for them and how all the spending will come back to affect them.
It is imperative that you use your credit wisely and not go overboard, do not go over your credit limit, peradventure you have a credit card that has a $2000 limit you should try not to go above the limit of the card.
It is advisable that you use less than 35% of your available credit, it is better to have a higher credit limit and use less of it each month.
A good example of migrants moving to Canada and being unwise with their credit is a story from this Twitter thread.
My friend came to Canada as a student in September 2021. 2 months after, her boyfriend (common-law partner) joined her and was able to work full-time, while my friend worked 20hrs/wk. It seemed like a dream come true for both parties.
— 𝑆𝑢𝑚𝑚𝑒𝑟 (@SummerOkibe) December 15, 2022
This is the sad part. They got carried away. They were ignorant. Her boyfriend went into a Mercedes Benz store and got a C-class worth over $45,000 with no down payment. The contract was that he would pay $500 monthly for 8 years.
— 𝑆𝑢𝑚𝑚𝑒𝑟 (@SummerOkibe) December 15, 2022
This was excluding the insurance as it cost $400 monthly. As a new immigrant, insurance costs more, plus the cost of the car also determines the amount you’d pay.
— 𝑆𝑢𝑚𝑚𝑒𝑟 (@SummerOkibe) December 15, 2022
They didn’t stop there. They moved into a 2-bedroom apartment that cost about $2,550 monthly (utilities inclusive). So, approximately, they will spend close to $3,500 on rent and a car. This excludes their grocery shopping which will cost $500 – $800 monthly.
— 𝑆𝑢𝑚𝑚𝑒𝑟 (@SummerOkibe) December 15, 2022
Now, this is where they messed up. As we speak, they have incurred a debt of over $25,000, and in return, their credit score has been affected drastically. They kept borrowing money and never paid it back in time.
— 𝑆𝑢𝑚𝑚𝑒𝑟 (@SummerOkibe) December 15, 2022
Finally, it seemed like God smiled at them. Her boyfriend got a Tech job and started offsetting the bills on their credit cards, the car and her tuition. They decided they wanted to buy their own house and decided to go to the bank.
— 𝑆𝑢𝑚𝑚𝑒𝑟 (@SummerOkibe) December 15, 2022
A credit check was run, and their credit score was below 300. Unbelievable!!! No bank will approve any loan for them because of their bad credit records. They are frustrated, angry and regret their decisions. They wished they weren’t careless and ignorant.
— 𝑆𝑢𝑚𝑚𝑒𝑟 (@SummerOkibe) December 15, 2022