17 – How to Obtain a Good Credit Score

Wayne  0:04  

Welcome to another edition of the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay and in today’s show, we’re going to be talking about credit scores – how you get one and what they mean. 

My guest today is Francyne Myers, from Allan Marshall & Associates, Licensed Insolvency Trustees in Nova Scotia, Halifax, and Truro offices as well. Francine, thanks for being here.

Francyne Myers  0:31  

Hey, great to be here. Wayne.

Wayne  0:32  

I’m excited that you’re excited to talk about credit scores.I thought this is going to be a short podcast but you said there’s so much to know when it comes to credit scores. So why don’t we start off with, what is a credit score in case somebody hasn’t seen the commercials?

Francyne Myers  0:52  

Yes, you know what, a lot of people get credit scores all mixed up with a credit report. You hear this number, and you don’t know what it actually means. So let’s talk about what it is. A credit score is a three digit number, somewhere between 300 and 900 that a lender or creditor can use –  it’s the same thing they will use to estimate the probability or the chances that you’re actually going to pay back their debt. It is what they look at to try and figure out if you’re a good credit risk, and they look at a lot of your different behaviors related to your credit and your credit history. And those behaviors are all on your credit report.

Wayne  1:35  

Okay. 

Francyne Myers  1:36  

Now, you didn’t ask to have a credit report created. This happened the first day you got a credit card. And the creditor reported to either Equifax, which is one of the credit reporting agencies in Canada, which you may have heard of – or TransUnion was the other credit reporting agency in Canada. They both do the same thing. 

Equifax was more popular for a long time, then TransUnion came along. But they’re pretty much equally based right now. Now, sometimes you look at Equifax, and you’ll see some of your debts, but you won’t see all of them. Then you’d have to go to TransUnion. Because not all creditors report to both. So that’s an important point to remember when you’re looking at your credit score. That’s why you might see some differences between your credit scores with TransUnion or Equifax.

Wayne  2:30  

Okay, but am I the weird one? Because I’ve never gone on either of those sites to look at my credit score.

Francyne Myers  2:37  

No, but you should.

Wayne  2:40  

Okay, right. Why?

Francyne Myers  2:42  

Because – and this seems like a kind of a high number to me. But it’s happened to be where I found mistakes, right? Probably about 80% of credit reports contain errors.

Wayne  2:58  

Oh, okay. All right. That’s good to know.

Francyne Myers  3:01  

That can be anything from them having a wrong previous address on you – to them having wrong debt on you, especially if your name is common to somebody else’s name. A fairly common name, like Jane Smith, or Robert Smith, and you’re not using your Social Insurance Number to check things – because then they can’t check by that number. And sometimes you’ll find things that are on there that are wrong. So you really should check your credit score to make sure that it is correct.

Wayne  3:36  

Okay, now, is it free for me to go check it?

Francyne Myers  3:40  

It is and it isn’t. Equifax and TransUnion, who are the original credit reporting agencies – they will charge you if you go directly to their websites. The good thing is, the banks, most of the banks will allow you through your online banking, to check your credit score through whichever one they use – Equifax, or TransUnion. 

Or there’s also two websites. One is called Credit Karma, and they pull data from TransUnion. The other one is called Borrowell. They pull data from Equifax and I don’t want to sound like an infomercial for either one of them. Because what they do is yes, they will allow you to look at your credit score on your credit report.  

But sometimes they’re not quite up to date. So it may be a little bit of old information that you’re seeing. And also they then have your information and they can market to you through data mining. So keep in mind, nothing in life is free. They are very convenient to take a look at but you’re gonna pay for it in the end because they’re going to start marketing to you.

Wayne  4:53  

So I’m assuming from what you’re saying the best way for me to go about doing this is to go maybe through my own online banking.

Francyne Myers  5:01  

If you can, yes –  not all the banks, the major banks do. I don’t believe the credit unions do and I don’t think all the banks do. But I know Scotia Bank does and the Royal Bank does. I’ve seen those because I’ve helped a lot of my own debtors or clients who come to see me, show them how they can check their credit reports through that. 

Wayne  5:21  

So, obviously, it’s important to have a great credit score. Why?

Francyne Myers  5:30  

Well, it’s important because – not just which is the obvious, that you’re going to get a better interest rate or even credit at all. It’s also important, because guess who else is looking at those credit scores these days? Employers? Insurance companies?

Wayne  5:48  

Wow. Yes. Okay.

Francyne Myers  5:51  

Insurance companies and your rate, sometimes that you get from your insurance company, is based on your credit score.

Wayne  6:02  

And they’ve asked me that when they’ve said, Hey, do you mind if we do a quick credit check? We can improve –  give you a better rate? So that’s what they’re doing – they’re checking my credit score through either of those. Oh, my goodness. 

Francyne Myers  6:15  

I recently traded in a car, spoke with my insurance company, got one off my policy, put another one on. And then three days later got a letter saying, by the way, you had already given us permission, and we checked your credit score at the same time to make sure that everything was okay. And that reminded me again, how important it is to keep track of your credit score and make sure your credit report is correct.

Wayne  6:43  

I’m learning a ton here about credit. I had no idea. I just thought this was something that I’ve seen on commercials. And when you’re mentioning these others, Credit Karma and the other one – I didn’t know those were real. In a way. I thought, well, I’ve seen the commercials. But are they the ones – because I’m always leery about where I should be putting my information, especially when it comes to my credit.

Francyne Myers  7:10  

Yes, and that’s the thing with Credit Karma or Borrowwell – they just don’t market as well. So most people have heard of Credit Karma. They do take your information, and they do what they call, data mining, right? They will market to you, for instance, if you have an account with Credit Karma, yes, you can go in anytime and track your TransUnion. Keep in mind, it’s not 100% up to date, they’re accurate, but they’re not 100% up to date. But they will then send you an email. Here’s an offer from one of our partners. 

Wayne  7:48  

Yes. Great. 

Francyne Myers  7:50  

So for me, you have to balance the convenience with the invasion of privacy, which is what we’re doing today, with a lot of things.

Wayne  7:59  

Yes, you are right –  more and more than people actually realize. So here I am, for the very first time going to find out what the heck my credit score is. What is a number that I should be expecting? What would be a good score? And what should make me start to tremble?

Francyne Myers  8:16  

Gosh, you know, I would be happy if I were checking my credit score for the first time and I had something over 750. Now, that being said, 650 and above is usually seen as a good credit score. If you’re looking at 750 and above, that’s an excellent credit score.

Wayne  8:43  

Okay, and all of a sudden, I look and I’m 473. That should make you tremble. Okay. Because they’ve been tracking this since you said I got my first credit card.

Francyne Myers  8:55  

If you’re looking at your credit score, and you’re surprised at 475 – you should know if your credit score is going to be that low. You should have some kind of indication. And if that’s a big harry surprise, there’s something wrong on your credit report.

Wayne  9:11  

Okay. Yes, good to know. Not that I’m checking, I’m just saying.  So can you change your credit score? How do you go about doing that? Do I have to go get more credit?

Francyne Myers  9:23  

No, not necessarily. But you make a good point, which almost sounds counterintuitive, getting more credit. 

Wayne  9:30  

Right

Francyne Myers  9:31  

So here’s the thing, keep in mind, what do credit scores measure?  They measure how good you are at paying off credit based on your past history. And they try to estimate your future behavior – which is a bit of a crystal ball exercise, for lack of a better word. They look at what you did to see what you’re going to do. 

So how to start to increase that – is to start to work at your new credit. Number one, if you haven’t been paying your bills on time, let’s just say you’ve got problems right now and you haven’t been paying bills on time. You know what? Start paying your bills on time. 

The other thing is, maybe you are too highly leveraged, which simply means if you’ve got a $1,000 credit card, and even if you’re making minimum payment, you’re running it at $900 a month. Guess what – your credit score is going to go down because you can’t pay off credit. It means you can’t handle any more. You might be able to handle what you’ve got, but you can’t handle any more. So your credit score is going to go down, because your future indicator of how good you’re going to pay it off is starting to get dimmer and dimmer.

Wayne  10:54  

Okay, that’s good to know.

Francyne Myers  10:56  

So bring it down and pay your bills on time. Now, here’s another thing, which is kind of interesting. Let’s say you have a car loan, and you have a mortgage, and they’re absolutely up to date. And there’s low interest rates, you have no problem with them. But your score is 700, which makes no sense at all. Because your bills are all paid off on time, and hasn’t been a problem. 

So why is my score not 750? Or 775? And the answer is because you don’t have all the pieces of the puzzle into the credit bureau. You haven’t indicated to them how good you are with what we call revolving credit. You’ve got the installment credit – that’s the credit you pay off every month at a fixed payment, like your mortgage. Your mortgage payment is a set amount, or your current loan, your current loan is a set amount. 

But a credit card changes. It revolves every month. You might have $200 on it this month, you might have $600 on it next month. Same with most lines of credit. They’re called revolving debt. So unless you have some kind of history with revolving debt, this is where most people kind of fall apart, when they should have a higher credit score. 

They don’t have a lot of debt. They may have one very low credit card, but that doesn’t tell the credit bureau how good they are with their money. It means they’re actually, when you’re looking at it, they’re probably really good with their money. But it doesn’t really give them all the picture because of course the credit bureau doesn’t know you like your mom knows you. All they can do is look at numbers.  

Wayne  12:47  

Yes. 

Francyne Myers  12:47  

So if you can’t show that you can handle a little more debt, your scores are not going to go any higher. I’ll tell you a really quick, funny story. So I always had one. Now use this as an example, because I’m speaking to it, from my own experience – one low limit credit card. And I was like, why is my score not higher? Not that it was a big deal, but it made me wonder. One of my colleagues said, get another credit card. Well, that didn’t make sense to me. But I got another credit card, and my score went way up. 

Wayne  13:18  

What? Really? 

Francyne Myers  13:19  

Yes, 

Wayne  13:20  

Just by having two credit cards, your score went up. So I’ve heard that credit cards are critical to getting your credit score up. That’s one of the things.

Francyne Myers  13:28  

That they are –  I never really knew that until I started looking into it. And it made no sense to me at all, because it seemed to me if I had a little bit of credit, then that would make me a good risk. But it didn’t, because it didn’t show that I could handle it. It showed that I could handle a little bit of credit, but not a moderate amount of credit. So it’s a happy medium weighing between the two. 

Wayne  13:55  

So should you use your credit card regularly? 

Francyne Myers  13:59  

I think that even really makes a difference.

Wayne  14:04  

Really, it’s just a matter of having it.

Francyne Myers  14:07  

And keeping the balance under 30% of the limit is the big thing. And people say that they like it when you use your credit card and then just make a minimum payment. I’m like, well, who’s they? 

Wayne  14:26  

Yes. 

Francyne Myers  14:27  

And I think they are the lenders who are making money off you. It’s not the credit reporting people who like it. It’s the people who are making money off you. 

Here’s another way in which I found out the hard way myself, which isn’t written down anywhere. Okay. So it says pay your bills every month. Okay, that makes sense. What it doesn’t say is, make sure you pay your bill before the lender reports to the credit bureau.

Wayne  15:02  

Explain why that would matter.

Francyne Myers  15:04  

Oh, here we go. Here’s a good explanation. Let’s say today’s the 29th of November. Okay. Let’s say you have a bill due December 4, you’re going to pay it December 3. It’s a $1,000 credit card and you’ve got $700 on there. You’re going to pay that puppy off in full on the third. Sounds good. Right? 

Wayne  15:26  

Yes. 

Francyne Myers  15:27  

Okay. In the meantime, ABC bank has reported on December 1. 

Wayne  15:34  

Really, 

Francyne Myers  15:34  

And what they report – they reported you’re at 70% of your credit limit.

Wayne  15:41  

That doesn’t even seem fair.

Francyne Myers  15:44  

Which means your credit score will now start to go down.

Wayne  15:48  

Wow, that’s unbelievable.

Francyne Myers  15:51  

So watch it. And sometimes as much as 40 or 50 points.

Wayne  15:56  

Wow.I’m shocked. I had no idea.

Francyne Myers  16:00  

Watch when they report. Because they don’t know you’re going to make your payments on the sixth. They don’t know you’re gonna make the payment on the fourth. All they know is when they got the information that you were in 70% of your limit.

Wayne  16:15  

But you’re saying to watch – how do I watch? 

Francyne Myers  16:19  

Know when they report. When you look at your credit bureau credit report – it will say last reported. 

Wayne  16:27  

Oh.

Francyne Myers  16:27  

You’ll look at that date. Sometimes a report every 30 days, sometimes a report every 60. Sometimes they report every 90. That’s kind of typical between 30 and 90 days, but they typically report on the same day within the cycle.

Wayne  16:43  

Okay, that’s perfect to know. What about this situation? People with good credit scores who get turned down by the bank? What’s that all about?

Francyne Myers  16:53  

Well, here’s what happens. Our credit score is only one thing the bank’s look at. So, if you’re doing everything right, you’re making your payments, you’re under 30%.  But you have other debts, or monthly bills that don’t log into the credit bureau. 

Because, keep in mind, usually power bills, cell phones, things like water bills, they don’t usually get reported to the credit bureau. They don’t tell them you’re doing well. They only tell them what you’re doing. So you’re only gonna find that if you miss the bill, then all of a sudden it shows up on your credit report, which is really frustrating. But they don’t they don’t give you a pat on the back if you’re doing well. 

Wayne  17:49  

Yes. 

Francyne Myers  17:50  

So the bank will look at that and say, well, you’ve got this bill, you’ve got this bill, you’ve got this bill, and we’re considering you for a car loan. But guess what, you’re paying too much on your mortgage. Oh, I know you want to pay it down quicker. And that’s admirable, but we really don’t think you’re going to have enough money to service our debt. So you could have a really good credit score – you could be diligently paying your bills living frugally – but because they have one debt that’s a little higher than what fits into their parameters, you’re going to be turned down. 

The other thing is, are you self-employed? Well, banks have a bit of an issue with someone who’s self-employed as compared to somebody who’s a mere T4 mortal like most of us. They like it when you have a steady paycheque. Let’s say you’ve been jumping from job to job – that’s not really dependable. You’re not going to be able to pay our debts back. So there’s a lot more that the bank looks at besides a credit score.

Wayne  18:55  

Wow, Francine, I can’t believe all the information regarding credit scores. I’ve learned a tremendous amount. Wrapping things up, what more do I need to know? Is there anything else you need to share with us?

Francyne Myers  19:07  

Credit scores come and go. If your credit score starts to go down, check your credit report. There could be something wrong on there. Number two, don’t panic. Don’t panic. Credit scores are just numbers that you can control based on the tools and tips that I’ve just given you. If your score has gone down, or if it’s lower, just start working on it and it will start to come up.

Wayne  19:34  

Francine, thank you very much for all this great information. You’ve been just a terrific person to be chatting with. My guest today, Francine Myers. And if you want to learn more, or maybe you want to schedule a free consultation with Alan Marshall & Associates, Licensed Insolvency Trustees, you can head to the website, wecanhelp.ca. 

And that is it for today’s episode of the Debt Matters podcast. Just make sure you subscribe wherever you get your favorite podcasts from. And of course, for more information, you can always check out debtmatters.ca I’m Wayne and thanks very much for listening.