Canadian, US credit scoring systems similar
So are the methods you can use to improve your score
Tanisha Warner is the communications manager for Money Management International, where she manages educational content designed to teach consumers about personal finance topics. She writes "Credit Care," a weekly reader Q&A about debt issues, for CreditCards.com.
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Dear Credit Care,
Hello, I live in Canada and my questions are: 1. I have four credit cards and I don't use two of them. Will canceling them impact my credit score? 2. I have been paying more than minimum payments and so now I want to improve my score. What measure should I take to bring my score on top again and how much is it affected because of minimum payments? -- Anand
Credit reporting and scoring works much the same way in Canada as it does in the U.S. In fact, two of the three major U.S. credit bureaus, Equifax and TransUnion, also provide credit reporting in Canada. The factors that affect your credit score are very similar as well. You can learn more about both credit reports and credit scores from the Financial Consumer Agency of Canada's page, "Understanding your credit report and credit score."
It does not appear that actions such as closing your two credit card accounts will have much affect on your credit score in Canada. The factors that carry the most weight when determining your credit score are your payment history (do you pay on time and as agreed), whether you have declared bankruptcy and the amount of your outstanding credit balances.
Given the factors that affect your credit score the most, you could improve your score by paying down your credit card balances. Paying only the minimum amount due means your balances are not decreasing very quickly. You will get a better rating for your credit card accounts if you pay your balances to a level well below your credit limit. For example, if your current balance is $2,000 and your credit limit is $3,000, you owe two-thirds of your total credit limit. You will want to pay down that balance to less than $1,000 or one-third of your total credit limit and you will see improvement in your credit score. The lower the balance and percentage of credit limit used, the more it will help your score. Even better would be to stop adding, if possible, any new charges to your credit card accounts.
You can also improve your credit score by bringing current any past due accounts that you have listed on your credit report. You can get free copies of your credit report from Equifax and TransUnion by mail. There's a mail-in form for Equifax and another for TransUnion.
An explanation of the codes that are associated with your accounts will be included in your credit reports. Any accounts that are listed as past due are hurting your credit score. For example, if you missed your car loan payment one month, but then made the subsequent month's payments on time, your account will still be listed as late. You need to pay the current month's payment plus the payment that you missed and bring the account current.
Should you have a past bankruptcy on your credit report, it will be removed from your credit reports and no longer negatively affect your credit score six or seven years from the date of discharge, depending on which province or territory you live.
Handle your credit with care!
See related: Visit our sister site, Canada.CreditCards.com
Tanisha Warner is the communications manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. She manages educational content designed to teach consumers about personal finance topics. You can find more money management advice on Blogging for Change and MMI's Facebook page.
Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week.
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Published: July 30, 2012