Finance With Rohan

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Tag: credit score

  • What Is a Credit Score in Canada and What Makes It Go Up or Down?

    What Is a Credit Score in Canada and What Makes It Go Up or Down?

    Your credit score is a number that follows you in Canada. It tells banks how well you handle borrowed money. A good score can help you get a loan or a credit card. A bad score can make borrowing hard. This article explains the score in simple words.

    What It Is

    A credit score is a three-digit number from 300 to 900. A credit report is a list of your loans and bills. A credit bureau is a company that keeps your credit report. The two main credit bureaus in Canada are Equifax and TransUnion. Your score comes from the facts in your credit report.

    Credit cards are the most common way to build a score. Each card payment adds a line to your credit report. We wrote about credit cards and credit scores here.

    Credit Score Bands

    • Excellent: 760–900
    • Very Good: 725–759
    • Good: 660–724
    • Fair: 560–659
    • Poor: 300–559

    How It Works

    Five things shape your score. The biggest one is your payment history. Your payment history is a record of whether you pay your bills on time. It counts for 35 out of 100 points of the score.

    The next big one is how much credit you use. This is called credit utilization. Credit utilization means how much of your credit limit you use. It counts for 30 out of 100 points of the score.

    The other three things are the length of your credit history, your credit mix, and new credit checks. They count for 15, 10, and 10 out of 100 points. A credit mix means the different kinds of credit you hold, like a card and a loan.

    An Example With Numbers

    Meet Maya. Maya has a credit card with a $1,000 limit. A credit limit is the most money you can borrow on a card. One month, Maya owes $200 on the card. That is 20 out of 100 of her limit, and it helps her score.

    The next month, Maya owes $900 on the same card. That is 90 out of 100 of her limit. That is a high share, and it can hurt her score. Many experts say to keep the share below 30 out of 100.

    Maya also pays her bill on time every month. Paying on time is the biggest part of the score. Small good habits can add up over time.

    Common Mistakes

    Paying a bill late is the most common mistake. A late payment can stay on your credit report for years. Using almost all of your credit limit is another mistake. It tells banks that you may need too much credit.

    Applying for many new cards at once is also a mistake. Each new card check can lower your score a little. Closing your oldest card can hurt too. An old card shows a long history, and a long history helps your score.

    Paying only the smallest amount on a card is a slow trap. Interest is the extra money you pay for borrowing. High interest can make a small debt grow fast. We explain how card interest works here.

    Final Thoughts

    Your credit score is like a school report card for borrowed money. It takes time to build, and it can fall fast. The good news is that small steps help. Pay on time and use only a small share of your limit.

    Check your credit report for mistakes too. You can ask Equifax and TransUnion for your free credit report. A good score is built one small step at a time.

    Quick Questions

    What is a good credit score in Canada?
    A score from 660 to 724 is good. A score from 760 to 900 is excellent.

    What is the lowest credit score in Canada?
    The lowest score is 300. The highest score is 900.

    What hurts a credit score the most?
    Late payments hurt the most. Payment history counts for 35 out of 100 points of the score.

    Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

    Sources: Equifax Canada, “What Is a Credit Score?”; Equifax Canada, “What Is Credit Utilization?”; TransUnion Canada, “Credit Score”

  • What I Learned About Credit Cards and Credit Scores

    What I Learned About Credit Cards and Credit Scores

    More from My Learnings

    What Is a Credit Card?

    A credit card is basically borrowed money from the bank.

    Example: Credit limit = $2,000. You spend $500. You owe the bank $500.

    Your credit limit is basically how much you are allowed to borrow.

    2 Important Dates

    • Statement Date — This is when your billing cycle ends. Your statement shows: what you spent, statement balance, minimum payment, due date.
    • Payment Due Date — This is the last day you need to make your payment.

    Best move = Pay the full statement balance by the due date. This generally means you don’t pay interest on purchases if you meet the card’s grace-period rules.

    Statement Balance vs Current Balance

    Statement balance = What you owed when the statement came out.

    Current balance = What you owe right now, including new purchases.

    Example: Statement balance = $500. Then you spend another $100. Current balance = $600.

    Minimum Payment and Interest

    Minimum payment is the smallest amount you have to pay. But if you only pay the minimum, you can carry the rest and get charged interest.

    APR = Annual Percentage Rate. Higher APR = more interest.

    So basically: Pay full statement balance = avoid unnecessary interest.

    What Is a Credit Score?

    A credit score is basically a number that shows how you handle borrowed money. In Canada: 300 to 900. Generally, higher = lower risk to lenders.

    Good credit can help with: credit cards, car loans, mortgages, lines of credit, some rental applications. It can also help you get better interest rates.

    What Affects Your Credit Score?

    • Payment History — Pay on time = good. Miss payments = bad.
    • Credit Utilization — How much of your credit you’re using. Example: $500 balance ÷ $5,000 limit = 10%. Generally, lower utilization is better.
    • Credit History — How long you’ve had credit. Generally, longer history is better.
    • Types of Credit — Credit cards, loans, lines of credit. You don’t need to take loans just to have different types.
    • Credit Inquiries — Hard check: usually happens when you apply for new credit. A hard inquiry is added to your credit report and can temporarily lower your score. It can stay on your credit report for years, depending on the credit bureau. However, lenders usually care much more about recent inquiries, often looking at roughly the last 2 years. Soft check: usually doesn’t affect your score.

    Simple rule: If you don’t need the new credit, don’t take a hard check just for a higher limit.

    How to Build a High Credit Limit

    Having a higher credit limit can help keep your utilization low. There are basically 2 ways:

    • Ask your current bank: “Do I have a pre-approved credit limit increase?” Then ask: “Will this require a hard credit check?” If it requires a hard check and you don’t really need it, don’t do it just for a higher limit.
    • Get another credit card — look for cards with no annual fee, good rewards, high potential credit limits. Some companies offer pre-approval with a soft check. But when you actually apply for a new card, it may require a hard check.

    Keep Utilization Low

    Example: You have $20,000 total credit limit. You spend $1,000. Your utilization is 5%.

    So basically: Higher credit limit + lower spending = lower utilization. You don’t need to spend more just because you have more credit.

    Do You Need to Carry a Balance?

    No. You don’t need to pay interest to build credit. You can: use credit card → pay full statement → build credit.

    Credit Report vs Credit Score

    Credit report = your credit history. Credit score = number based on your credit history. In Canada, the two main credit bureaus are Equifax and TransUnion.

    Credit Card Rewards

    Some cards give cash back, points, travel rewards. But don’t spend extra just for rewards. Don’t spend $100 just to get $2 back.

    Closing an Old Card

    An old card can help with your credit history and available credit. Before closing it, look at: annual fee, how old the card is, your total available credit, whether you actually need it. Don’t keep an expensive card only for your credit score.

    How to Win With Credit

    • Pay on time
    • Build a high credit limit responsibly
    • Keep utilization low
    • Don’t carry unnecessary debt
    • Don’t apply for unnecessary cards
    • Don’t pay interest just to build credit
    • Let your credit history grow

    Simple formula: High limit + low spending + on-time payments + time = strong credit.

    Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

    Sources: My own study notes, with facts from Canada.ca / FCAC credit card guidance.

  • What I Learned About Credit Cards as a Student

    What I Learned About Credit Cards as a Student

    Introduction
    I got my first credit card offer as a student. It looked exciting. A small card could buy things now. I could pay later. That sounded easy. It sounded almost like free money. It is not free money. I learned that lesson slowly. This is what I learned.

    What I Learned
    A credit card lets you borrow money from a bank. You do not own that money. You must pay it back. Each card has a limit. A limit is the most you can borrow on that card. Each month, you get a statement. A statement is a list of what you bought. It also shows a due date. The due date is the day you must pay by. You can pay the full amount. Or you can pay a minimum payment. A minimum payment is the smallest amount the bank asks for that month. It sounds helpful. But it can be a trap. If you pay only the minimum, the rest stays as debt. Debt is money you still owe. Then interest is added. Interest is the extra cost of borrowing. Many credit cards charge interest of about 20 percent a year. That is high. So a small purchase can cost much more over time.

    A Mistake or Surprise
    My surprise was how fast interest can grow. I thought the minimum payment would solve the problem. It did not. It only slowed the problem down. The debt stayed. The interest kept adding. I also learned about a credit score. A credit score is a number. It shows how well you handle borrowed money. Paying on time can help your score. Missing payments can hurt it. A good score can help later in life. For example, if you spend $20 a week on a card, that is a general example. It is not my real spending. The point is simple. Only spend what you can pay back in full.

    What I Do Now
    Now I keep it simple. One card is enough at the start. I do not need many cards. I set a reminder before the due date. I check my statement each month. I look for mistakes. I try to pay the full amount. If I cannot pay in full, I pay as much as I can. I do not buy things just because I have a card. I ask one question first. Can I pay for this from money I already have? If the answer is no, I wait. That rule helps me stay in control.

    Final Thoughts
    A credit card is a tool. It is not free money. It is borrowed money. The minimum payment trap is real. Interest of about 20 percent can make debt grow fast. Paying in full is the safest habit. Your credit score grows from small, steady, on-time payments. Start with one card. Learn the rules. Use it slowly. That is what I am learning to do.

    Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

    Sources: Financial Consumer Agency of Canada (FCAC) / Canada.ca – Credit cards: https://www.canada.ca/en/financial-consumer-agency/services/credit-cards.html