This post was originally written in 2016, but with new free products (see Borrowell below), and a friend asking about how to obtain credit scores, I thought there was value in updating this post.
Credit cards and mortgages are a hot topic in the personal finance world. Since both are essentially loans, credit issuers and lenders need some kind of assurance that you can repay the loan. In verifying your ability to repay the loan, lenders generally look at a few criteria: your current income; your current debt; and, your history of repaying debt.
While your current income and debt are easy to quantify, how do lenders quantify your credit history? You may already know this, but when you sign up for a credit card or a loan of any type, this activity is recorded in a database and aggregated into a credit report. A credit report will track the lender name, the balance on the account, the status, and history of the account (if you’ve paid on time, or missed payments etc). The credit information is put together and a credit score is assigned through an algorithm created by Equifax and/or Transunion – the two main credit reporting agencies in Canada.
To give you an idea, here is the range that your credit score can fall:
- 0-560: Poor
- 560-660: Fair
- 660-725: Good
- 725-760: Very Good
- 760 – 900: Excellent
The higher your credit score, the more favorably a lender will view your application. The issue is that while obtaining your credit report is free (paper only by calling Equifax @ 1-800-465-7166 ), obtaining your credit score has a fee associated with it. That is, up until now.
Get Free Credit Scores Online
A number of online Canadian companies have started offering free credit scores. They offer this service as a way to generate more sign-ups to their website and obtaining your personal information (no SIN required). I’m not a big fan of giving away personal info, but I’m fairly comfortable in this case as a SIN number is not required.
Generally, all you need is your name, birthday, address, and the ability to answer some multiple choice credit report questions. It’s also important to note that checking your credit score on multiple sites will not impact your credit score.
Here are the four companies (and the credit agency that they use) that I have come across that offer free credit scores for Canadians:
- Borrowell – Equifax (quarterly updates) – now offers your credit REPORT for free;
- Credit Karma – Transunion (weekly updates – bonus: fairly detailed report with a chart tracking over time);
- RateHub.ca – Equifax (monthly updates); and,
- Mogo – Equifax (monthly updates).
I like Credit Karma in that: first, you get a access to Transunion; second, they give you weekly updates (rather than monthly or quarterly); and third, the level of detail that they give you. I think overall, Borrowell offers the most value as it provides your credit score PLUS your credit report for FREE.
Why am I Interested in my Score?
So being mortgage free and no expected loans coming up, why am I all of the sudden interested in my credit score? I recently realized that most of our credit cards over the past ten years have been under my name with my wife as a secondary cardholder (no credit check). Normally, this would be fine, but I wanted to make sure that my wife had creditworthiness to apply for loans/credit if need be (for example if I were to pass away suddenly).
With that, I created accounts with the websites above to test them out. It turns out that she has a credit score that would fall into the “Excellent” range (in fact, slightly better than my score). With the confidence of a strong credit score behind us, we decided to sign up for a credit card under her name. The PC World Elite MasterCard promo was good timing as we shop at Loblaws, and the $100 Cineplex gift card bonus was enticing (she enjoys the movie theatre – see my Scotia Momentum Infinite review on how to maximize SCENE points) – so we signed up and have already received the card ($100 offer still valid today).
Improve your Credit Score
So what if your credit score isn’t the best? There are a number of strategies that you can use such as:
Through a few quick and easy steps, you can keep your credit score at the top levels:
- Always pay your bills on time with at least the min required payment.
- Keep your amount borrowed less than 50% of your total credit available.
- Avoid applying for multiple credit products within a short span of time.
- If cancelling credit cards, avoid cancelling the ones with the longer track records.
- If retaining a high credit score is top priority, then avoid loan consolidation. The reason being is that your total credit available will decrease while keeping the total borrowed the same.
The best thing about these free credit score websites is that you can track your credit score over time. So if you apply for a new credit card, you can see how it impacts your score, and how it recovers over time. My wife’s Transunion score dropped 10 points after applying for the PC World Elite card (but has since recovered). Take note though that you are giving away your information in exchange for the free credit scores, so be prepared to get emails from them promoting their credit products.
Have you signed up with these sites to get your credit score? Are there any other sites available that do the same thing?
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