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THE TRUTH ABOUT CREDIT SCORES IN CANADA - YouTube
Channel: Nolan Matthias
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hey welcome back it's nola mathias and
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today i want to give you the definitive
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guide on how to manage your credit in
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canada
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because you know what i've been watching
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the youtubes and there's a lot of really
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crappy information out there so i want
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to give you
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the realities the hard truths of how to
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manage your credit
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what works what doesn't from somebody
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who's been in the industry for 18 years
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now
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and actually understands how credit
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bureaus work but before we get into it
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do me that favor hit that subscribe
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button hit that notification bell and
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please
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hit the like button so more people like
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you can see this video this one's an
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important one
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and as always make sure you leave your
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questions and comments about credit
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in the comment section below i'll get to
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them as soon as you send them okay so
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let's talk credit bureaus because this
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is a topic
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that is widely misunderstood we've seen
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all sorts of bad advice on this topic
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over the years and
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i want to set the record straight on a
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whole bunch of things and talk about
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what really matters in your credit score
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and i want to start with
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two fallacies that i see consistently on
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the internet right now especially on
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youtube
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and they are one that applying for
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credit cards and credit card hacking so
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that you can get rewards is a good idea
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because
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it's not and two that you should be
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using free credit score
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apps in order to monitor your credit and
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this is a really bad idea and i'll tell
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you why
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but first let's talk about that first
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piece which is credit hacking
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credit hacking is one of the things that
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can single-handedly reduce your credit
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the quickest because
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quite frankly there are two things wrong
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with credit hacking one is it requires
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you to be consistently applying for
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credit
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which does have an adverse effect on
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your credit we'll get to that
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a little bit later on in the video and
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two is the more credit you have
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the more inclined you are to use it
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which leads a lot of people who get into
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credit hacking for things like free
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rewards
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into a lot of financial trouble down the
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road and we have seen this consistently
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with clients throughout the years where
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somebody comes in
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and basically has to either refinance or
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doesn't qualify for a mortgage
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because they've taken somebody's advice
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on how to get free things by using
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credit cards
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let's call a spade a spade right now if
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somebody is offering you something for
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free whether it is your credit score or
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whether it is
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flights or whether it is some sort of
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reward there's a reason they're doing it
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and it's because they know that if they
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do
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statistically you are going to end up
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spending money with them or
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in the case of credit cards you're going
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to borrow money from them and that's not
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just true for credit card rewards
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programs it's also true for these
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companies that offer
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free credit score monitoring and free
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identity theft
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monitoring these art companies are doing
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that for a reason
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and the reason why is because they are
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using the fact that you are getting
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your credit score monitored by them in
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order to get you to eventually apply for
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credit cards with them
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or loans with them or mortgages with
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them your free credit score
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is an avenue for them to sell you debt
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so
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stay away from those sorts of companies
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so how do you really monitor your credit
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score
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well the best way to monitor your credit
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score is to go to a place like
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equifax.ca or transunion.ca and
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pay to get your credit score directly
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from them and both of these companies
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have credit monitoring
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products you just have to pay for them
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rather than get them for free but
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remember it's just like facebook if
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something's free
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if you're able to use it for free it
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isn't the product
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you are and that's what these companies
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that are giving you free credit
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reports and free credit score monitoring
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are doing is they're using you as the
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product so that they can sell you credit
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cards and loans and stuff down the road
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stay away from those so once you've gone
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to equifax.ca once you've gone to
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transunion and you have
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figured out what your credit score is
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and they've told you all the things you
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can do to
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improve your credit well that's when it
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is time to take action now keep in mind
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that
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equifax transunion they're going to have
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different ways of calculating your
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scores
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in fact each of those companies has
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different ways of calculating the score
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depending on who's asking for it so the
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score that you see
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is often going to be a different score
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than what the credit card company sees
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or what your mortgage broker sees or
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what your bank sees
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and the reason for this is they just
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have different algorithms that they use
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and different
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people different companies subscribe to
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different versions of the algorithm for
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us
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we subscribe to what's called beacon 9
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so we see a beacon score
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it is the latest version of a beacon
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score and it has
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a higher emphasis on certain things than
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it has on other things
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and i'll get into that in a second here
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when i start talking about what actually
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affects your credit so what does affect
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your credit well there's five specific
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areas that credit bureaus look at in
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order to establish your credit they are
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your payment history your used versus
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available credit your credit history
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your public record and your actual
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credit inquiries and we'll go through
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each one of these in detail so let's
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start with payment history payment
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history makes up
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35 of your credit score and what payment
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history is
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is exactly what it sounds like it is
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your history of actually making your
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payment so if you're new to credit
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generally
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your payment history is very good
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because chances are you haven't missed a
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payment yet however if you do eventually
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miss a payment that missed payment will
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be on your credit bureau for at least
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seven years now there's
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different degrees of missed payments
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there's missed by 30 days
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missed by 60 days missed by 90 180 and
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so on and so forth and typically how
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this is categorized
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is as an i1 or an r1 or an i2 or an
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r2 i1 i2 i3 i4 that refers to
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installment payments
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r1 r2 r3 r4 refers to revolving credit
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and installment payments are exactly
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what they sound like that's when you
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have something like a car loan and you
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have an installment payment that you pay
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every single month until it's paid off
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and revolving payments are things like
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credit cards and lines of credit
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where your credit fluctuates as you
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borrow more and pay it off and you
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obviously have the option to pay more
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down as time goes on
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and draw more down as time goes on so an
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i1 or an r1 means that your payment has
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been made on time
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if you go to i2 or r2 it means that
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you've missed a payment by at least 30
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days now a lot of people believe that if
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you miss a payment by one or two days
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that that's a mispayment and that hurts
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your credit
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that's not actually true you actually
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have a 30-day grace period to make your
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payments before it starts to affect your
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credit
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so if you see somebody who has an r2 or
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an i2 or if you yourself have an i2 or
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an r2
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it means that you've missed a payment by
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more than 30 days so you didn't just
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miss it on the due date
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but you missed it by a whole month after
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the due date and that is when your
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credit starts to get hurt
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and those are twos our threes are fours
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those will last on your credit bureau
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for at least
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seven years the only way to get rid of a
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missed payment on your credit bureau
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is to wait and it takes basically seven
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years
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so time is the only cure for missed
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payments on a credit bureau
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and late payments have the biggest
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negative effect on your credit score
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because late payments are the thing that
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indicates to somebody who's about to
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give you credit
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that you aren't reliable so the number
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one thing you can do to keep your credit
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score high is to make sure
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that your payments always get made on
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time bar none if there's
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anything that you take away from this
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video it is this make your payments on
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time and your credit will always be
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reasonably good
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as soon as you miss a payment that's
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when you're starting to get yourself in
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credit trouble
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now if you get to an r6 which is
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basically 180 days late
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that is basically when lenders will
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start to sell your
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your loans to collection agencies
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they'll basically write it off on their
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books and that's when you'll start
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getting calls from you know
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the collectors that nobody likes to get
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calls from and here's the thing about
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that is once
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it goes to a collection agency it's
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pretty much considered an r9 which is
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the worst score you can get
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for a payment of any sort and that
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basically means that you have failed to
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pay it and the bank has said hey
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we're done with him and then you end up
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with this thing that additionally hurts
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your credit which is the collection
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because collections show on your credit
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bureau as well
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and those have a significantly bad
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impact as well now the types of things
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that we typically see on a credit bureau
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that do a ton of damage to somebody's
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credit are collections from two types of
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organizations
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one is cell phone companies and two is
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ambulances so if you get into a feud
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with a cell phone company about whether
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or not
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they each overcharged you the best
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course of action is
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not to say i'm not gonna pay you the
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best course of action is to pay them
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and then continue to fight them after
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you pay them because
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telephone companies will damage your
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credit they have
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no hesitation in doing so and it is the
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number one way that we
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see people get their credit score
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absolutely screwed and the big thing you
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need to understand about collections as
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well is you're probably not getting a
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credit card or a loan until that
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collection is shown as paid
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so the collections agencies know that
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the chances of you being able to get
[491]
something like a mortgage
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are slim to none until you make right on
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that credit so they will get their money
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money eventually
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so it is best to pay them and then fight
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them after you pay them so that they
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don't damage your credit
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and by the way equifax transunion you
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can go to them and say this isn't fair
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all you want
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but there's a really good chance that if
[507]
the credit card company
[509]
the telephone company whoever it is and
[512]
the collection agency
[513]
can show that they've tried to get you
[514]
to make the payments and you haven't
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done so there's a really good chance
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that equifax and transunion are going to
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do
[520]
absolutely nothing to help you so again
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make your payments whether you think
[523]
they're fair or not make the payments
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make the payments make the payments
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now the second thing that affects your
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credit is your use versus available
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credit ratio and this accounts for
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30 of your credit score and in recent
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years this has been one that we've seen
[535]
do
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a ton of damage to people unexpectedly
[537]
because it used to be not as big of a
[539]
factor but now it is
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and what your use versus available
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credit ratio shows is your utilization
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so if you've got let's say
[546]
a ten thousand dollar line of credit and
[548]
you're constantly using ten thousand
[550]
dollars of it
[551]
well what that tells the credit bureau
[553]
agencies is that
[554]
there's a good chance you are going to
[557]
run out of your ability to make your
[559]
payments because you're using so much
[560]
credit
[561]
so what they want to see is they want to
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see low credit utilization
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if you've got 10 15 20 000 available to
[567]
you in credit
[568]
they want to see you use a thousand or
[570]
two thousand or five thousand dollars
[572]
not the entirety of your credit that's
[573]
available to you because what they say
[575]
is that the number one indicator of
[577]
whether or not somebody's going to get
[578]
into financial trouble
[580]
is the amount of credit that it they've
[582]
started to use and obviously in canada
[584]
this has been a huge discussion over the
[585]
last several years where canadian debt
[587]
ratios are so high
[589]
and as a result equifax and transunion
[590]
recognize this and now they're giving
[592]
that a higher factor in credit score
[593]
algorithms to make sure that it's
[595]
accounted for
[596]
in somebody's risk profile now this is a
[598]
number that you can gain so the fastest
[599]
way to increase your credit score is to
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play around with this credit utilization
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number and the way that you do it is by
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making sure that you have
[607]
less credit utilized so ways you can do
[609]
that is by
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paying down your existing credit or
[613]
applying
[614]
carefully for new credit so basically
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the first strategy is to pay down as
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much credit as you can and within 30 to
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60 days once you've paid down
[622]
uh credit cards and lines of credit that
[624]
you've utilized to a high extent
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well then your credit will start to
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increase now the other way
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again is to apply for new credit we
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typically don't want to see people apply
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for new credit unless they absolutely
[635]
need it
[636]
but this is one way to kind of game the
[638]
system if you apply for a new credit
[640]
card
[640]
a new loan a new line of credit that
[642]
will increase your available credit and
[644]
ultimately if you aren't using it will
[646]
help increase your credit score
[648]
another thing you need to watch out for
[649]
is if you're at high utilization rates
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and you start applying for more credit
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well what that tells the credit agency
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is that you're in trouble and you
[656]
need more credit and that will actually
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do more damage to your score than good
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so that first strategy of paying down
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your credit always works the second
[663]
strategy of applying for more credit to
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get that utilization ratio
[667]
changed up a little bit that one can be
[669]
dangerous and doesn't necessarily work
[671]
all the time in fact
[673]
it can do more harm than good but let's
[676]
say you get something like a
[677]
pre-approval letter for a free credit
[679]
card where they say
[679]
no credit check required or you get the
[682]
ability to get a free credit card or
[684]
free line of credit with a mortgage or a
[686]
bank account
[687]
well it's always a good idea to accept
[688]
those offers as long as there's no fees
[690]
associated with them because that will
[692]
increase your
[692]
available credit and will ultimately
[695]
increase your credit score as long as
[696]
you don't actually end up using those
[698]
credit cards or lines of credit that
[699]
they've been offered now the third
[700]
factor that goes into your credit score
[702]
is your credit history and this is
[703]
basically how long your credit's been
[705]
established now a lot of the times we
[707]
see people
[707]
upgrading credit cards getting new
[709]
credit cards and they have this you know
[710]
old mastercard or this old visa
[712]
or something that they haven't used in
[714]
15 20 years and they go you know i
[715]
haven't used it because i've got a
[716]
better aeroplan card now or i've got a
[718]
better
[719]
card that gives me a better reward so
[720]
i'm going to shut down that original
[721]
credit card and
[723]
that's a bad idea what you want to do is
[724]
you want to try to maintain
[726]
your longest standing credit facilities
[729]
and what i mean by that is if you get a
[730]
credit card that you opened up when you
[731]
were 18 years old and you've held on to
[733]
it for the last 20 years
[735]
well that 20-year time frame adds to
[738]
your credit history
[739]
and that helps increase your credit
[740]
score now the fourth thing and this
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makes up about 10 of your credit score
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is
[744]
public records now these are things like
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collections and bankruptcies
[748]
now public records make up about 10
[751]
but don't let that fool you because if
[753]
you've gotten to the point where you've
[754]
got a public record or a collection
[756]
there's a really good chance there's a
[757]
lot of other stuff on your credit that's
[759]
gone really bad you've missed payments
[761]
you've got high utilization and at this
[763]
point your credit is
[765]
really bad and it's probably going to be
[766]
a 7 to 10 year rebuilding process for
[768]
you
[769]
so the key here is to make sure that
[771]
there's never a public record filed
[773]
on your credit if you get a call from a
[775]
collection agency if you know you're
[776]
getting behind on your bills do
[778]
everything you can to make sure
[780]
that you don't have to declare
[781]
bankruptcy that you don't have a
[783]
collection and by the way consumer
[785]
proposals
[786]
consumer proposal agencies will tell you
[788]
that this is better than a bankruptcy it
[790]
won't affect your mortgage it doesn't
[791]
affect your credit as much
[793]
it does it makes it as equally as hard
[796]
to get credit as a bankruptcy does
[797]
they aren't good things they do not help
[799]
you there are better options
[801]
if you can avoid a consumer proposal do
[803]
so at all cost avoid these like the
[805]
plague they are not a good thing no
[807]
matter what the consumer proposal
[808]
company
[808]
tries to tell you if you have to if you
[811]
absolutely absolutely have to find do it
[814]
but don't think that just because you
[815]
get a month or two behind on your
[817]
payment
[817]
and things are a little bit tough that
[819]
this is a good idea because there's a
[821]
really good chance
[822]
that it's not and the fifth thing that
[823]
affects your credit and this is probably
[825]
the most misunderstood of the five
[826]
is inquiries and this makes up about
[828]
another 10 percent of your credit score
[830]
and this is the reason why we were so
[832]
adamantly opposed to
[833]
credit card hacking is because inquiries
[836]
can
[836]
hurt your credit and they can affect it
[839]
quite negatively
[840]
we have seen people on many occasions
[841]
who have made every single payment who
[842]
have low credit utilization
[844]
but have a ton of credit cards and a lot
[846]
of inquiries because they've done
[848]
something like credit hacking or
[849]
people who like to go and shop for cars
[852]
and go in every single month and let the
[854]
dealerships run their credit these types
[856]
of activities
[858]
definitely do damage to your credit it
[860]
doesn't matter what the experts on
[861]
youtube
[862]
tell you applying for credit when you
[864]
don't need it is a bad idea unless you
[866]
have no credit at all
[867]
now that's not to say that when you do
[869]
need credit that you shouldn't go
[870]
and shop for credit because one of the
[872]
things that we often see with clients is
[874]
they feel like if they apply with us and
[876]
then they apply with their bank and then
[878]
they apply with another broker that's
[879]
going to do damage to the credit well
[881]
it won't because credit bureaus and the
[883]
algorithms are
[884]
smart what they realize is that when
[887]
people go to apply for credit that they
[889]
should have the right to shop and that
[890]
they probably will so typically if
[892]
you're going and looking for a mortgage
[894]
and you apply several different places
[896]
that have mortgage credit bureau
[898]
pull codes well those polls will all be
[901]
counted as one rather than as four or
[903]
five so you do have the right to shop
[905]
and shopping with multiple places will
[907]
not affect your credit in a super
[909]
negative way
[910]
you know what will is if you apply for a
[912]
mortgage
[913]
every month for 12 to 15 months in a row
[916]
but if you're applying once
[917]
and then maybe doing a recheck four
[919]
months down the road to actually get the
[921]
mortgage
[922]
when you go to purchase a property that
[924]
stuff won't hurt you it's when you apply
[926]
over and over and over again for doing
[928]
things like credit card hacking that you
[930]
get hurt
[930]
the other thing to note is that there
[932]
are things like soft and hard hits when
[934]
you go and ask for your credit for the
[935]
companies that do the free credit score
[936]
monitoring
[937]
stuff when you ask for it from equifax
[939]
or transunion
[940]
or when your bank does a soft hit to see
[943]
if you're still worthy of credit from
[945]
them and to maybe make you offers in the
[947]
future
[947]
those things won't affect your credit
[949]
what will affect your credit is when you
[951]
apply for credit when you apply for
[953]
loans when you apply for mortgages when
[955]
you apply for
[956]
lines of credit or credit cards those
[958]
things will affect your credit
[959]
however a single inquiry isn't going to
[961]
hurt you enough to drop your credit
[963]
score from 750 down to
[965]
620. it might drop at a point or two now
[967]
let's talk real quickly about credit
[969]
scores because there's a lot of
[971]
misinformation around this as well
[972]
what constitutes a good credit score in
[974]
canada well anything over 680 is
[976]
considered good
[977]
and that will pretty much get you the
[979]
best rates the best options the best
[981]
best at servicing ratios across the
[983]
board so if you've got over a 680 beacon
[985]
score you're probably going to be okay
[988]
between 620 and 680 that's where things
[991]
get a little bit iffy
[992]
you may not be able to qualify for as
[994]
much will you pay a higher interest rate
[996]
probably not most companies don't charge
[999]
a higher interest rate between 620 and
[1001]
680
[1001]
but it's a possibility now under 620
[1004]
this is where you start to get into
[1005]
issues this is where it starts to become
[1007]
hard to get a loan and because it's hard
[1009]
to get a loan
[1010]
the price goes up that's where you start
[1011]
getting charged a higher interest rate
[1013]
if you're between 550 and 620 can you
[1016]
improve your credit score and get it
[1017]
back up into that 650 to 700 range yes
[1020]
it's definitely possible
[1021]
once you get below 550 you've probably
[1022]
got a lot of work to do and it's
[1024]
probably going to be a matter of making
[1026]
sure
[1026]
going forward that you always make your
[1027]
payments on time and making sure that
[1029]
you do so for at least a seven to ten
[1031]
year period because once you're under
[1033]
that 550 beacon score
[1035]
it's probably going to take a lot of
[1036]
time and a lot of effort to get your
[1038]
credit score back to where it needs to
[1040]
be so to round this whole thing out what
[1041]
are the things you can do to make sure
[1042]
credit stays good well first of all
[1045]
avoid missed payments avoid consumer
[1046]
proposals avoid collections avoid
[1048]
bankruptcies
[1050]
basically avoid anything that has to do
[1052]
with missing a payment
[1053]
the second thing is make sure you keep
[1055]
your utilization rates low so
[1056]
borrow far less than what you have
[1058]
available to you the third thing is
[1060]
don't shut down those old credit cards
[1061]
they are helping you by the way don't
[1063]
shut down any old credit cards or any
[1065]
lines of credit because the longer you
[1066]
have them
[1067]
the more available credit that means you
[1069]
have and the better your credit score
[1070]
will be and the fourth is don't apply
[1072]
for credit
[1072]
you don't need if you've got a good
[1073]
credit score if you've got all the
[1074]
credit that you need
[1076]
don't apply for more there's no point
[1078]
now if you've got under 2
[1080]
000 in credit cards available to you and
[1082]
you've had less than two years history
[1084]
on them does it make sense to maybe
[1085]
apply for another one and get a little
[1086]
bit more available to you
[1088]
absolutely but outside of that there's
[1090]
really no reason for
[1091]
to apply for a loan that you don't need
[1093]
or a credit card that you don't need and
[1094]
sure as hell don't do credit card
[1096]
hacking that's just silly
[1097]
so if you found this video useful if you
[1099]
found it interesting if you found you
[1100]
learned a whole bunch about credit that
[1102]
you didn't know do me that favor
[1103]
hit that subscribe button hit that
[1105]
notification bell and please hit that
[1106]
like button so more people like you can
[1108]
see this video this is definitely an
[1109]
important one
[1110]
and please please please do me that
[1112]
other favor comment
[1114]
in the comment section below ask me your
[1115]
credit questions leave me your credit
[1117]
comments and
[1118]
we'll see you on the very next video
[1120]
cheers
[1138]
you
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