hey guys it's Adrian here the Canadian in a t-shirt and today I'll be breaking
down what is a credit score and how to improve your credit score in 7 steps
for Canadians these strategies will be targeted towards Canadians but the same
principles apply in the United States these seven strategies will help anyone
build their credit score even if they have no credit history, say you're a
student or a recent immigrant also these steps can be achieved entirely on your
own you do not need to rely on anyone else so I won't be discussing things
like piggybacking in this video so with that let's jump into what is a credit
score and why should I care? A credit score is a measure of how reliable you
are with your credit and how risky it would be for someone to lend you money
having a high credit score means that you're more likely to repay your debts
and so you'll have a higher chance of being approved for mortgages loans and
credit cards your credit score is a number between 300 and 900 with 900
being the best in America the maximum credit score is 850 but in Canada the
max is 900 different institutions have a different view of what is a good score
but this is the general consensus anything above 780 is considered
excellent very good is between 720 and 780 fair is between 680 and 720 below
average is 600 to 680 and anything below 600 is considered a poor score if you
have a credit score above 700 you have a strong record of being good with your
credit and paying off your debts and so you'll be approved for most credit cards
loans and mortgages but if you have a poor score say 550 you'll be considered
higher risk and so you might not get approved for a loan and if you do get
approved they will probably charge you a higher interest rate to make up for this
higher risk plus they won't be willing to lend you as much money as they would
to someone with a strong credit score but your credit score doesn't only come
into play when you're borrowing money it's kind of like your driving record
it's a general metric of your financial reliability quite a few employers will
check your credit score when you apply for a job if you have a poor score it
might hurt your chances of getting that job likewise if you're trying to move
into a new house or apartment the landlord will often check your credit
score if you have a great score you're more likely to pay your rent on time and
so the landlord is more likely to choose you as a tenant having a high
credit score is incredibly important but it does take time to build so it's
important to always follow these seven steps at any stage of life step number
one is to check your credit score this is so important because the first step
in solving a problem is realizing that you have one in Canada there are two
main credit bureaus and each one will calculate your score a little
differently the two bureaus are Equifax and TransUnion you can request a credit
report from Equifax and TransUnion directly but they will charge you a fee
for every request instead I suggest you use a free service to check your credit
score and I recommend Credit Karma and Borrowell Credit Karma gives you a
credit score calculated by TransUnion and Borrowell gives your score calculated
by Equifax TransUnion and Equifax calculate your score a little
differently and so you actually have two different scores which might have a
pretty large discrepancy between them when you apply for a loan you don't know
if the lender will use your Equifax score or your TransUnion score so it's
always important to check both of them so if you sign up for both Credit Karma
and Borrowell you'll have all of your bases covered
both of these services are totally free they make their money by suggesting or
advertising credit cards to you based on your spending habits both of them are
very similar you'll see your overall credit score a graph showing your score
changing over time and your credit report listing all the loans and credit
cards that you have on file and a list of all the inquiries you made when you
applied for a new credit card or for a new loan this credit report is what you
really want to pay attention to you want to make sure that there are no mistakes
in your report and mistakes happen all the time your credit report
might mistakenly say that you missed last month's payment or it might include
a car loan that you never took on these mistakes are hits against your score and
if you never call to correct them they'll continue to hurt your score
without you knowing it that's why it's so important to check your credit score
regularly you don't have to check your score every day but make a habit of
checking every few months to see if your score is increasing and if there are any
mistakes call Equifax or TransUnion and they will correct it and then you'll see
a huge bump in your credit score also there is no downside of checking your
credit score on Credit Karma or Borrowell every time you check your credit
score it's considered a soft inquiry and this does not affect your credit score
at all step number two is to stop paying with cash and start using a credit card
when you pay with cash or debit you'll get any benefits at all you're just
spending money and this isn't helping you build your credibility instead if
you use a credit card every single time you make a purchase and every time you
pay your credit card bill in full this will increase your credit score and this
makes sense when you're using a credit card you're basically using borrowed
money but if you use this borrowed money responsibly and you pay back your loan
every month you're proving that you're reliable and so your credit score
increases plus if you spend ten thousand dollars a year in cash
that's just ten thousand dollars down the drain but if you spend ten thousand
dollars a year in credit cards you'll earn between 2% and 4% in cashback
that's $200 to $400 in free money check out my past
video on the top five No Fee cash back credit cards in Canada these are credit
cards designed for low-income individuals and for people with low
credit scores so click the pop up the top right check that video out if you
have a higher income and you spend a lot of money then check out my top five
premium cash back credit cards in Canada with an annual fee these cards offer
higher cashback rates up to 4% so if you spend a lot of money this
higher cash back rate makes up for the annual fee I do have to give a big
warning though you have to control your spending one of the advantages of using
cash is that you can't spend more than you have but with the credit card it can
be easy to spend until you've maxed out your credit limit
you must keep track of your expenses and make sure that you are only spending
what you can afford my mindset is to use my credit card as if it was a debit card
even if my credit limit is $10,000 I set my own monthly limit to $1,000 because I
know that's how much I can afford to spend every month for those of you who
are starting off with no credit history say you're new to the country you might
not be able to get approved for a regular credit card and so you should
start off by applying for a secured credit card a secured credit card works
the same way as a regular credit card but you have to provide an initial
deposit before you can start spending money so if you get approved first fix
your credit card with a $1,000 limit you will have to pay them a $500 or even a
$1,000 deposit before you can start using it this deposit is used as
collateral to prove that you're trustworthy and this money is fully
refundable once you cancel your card and switch to a regular credit card you'll
get this initial deposit back and if you're a student there are tons of
credit cards tailored just for you I'll be releasing a video of my top three
student credit cards Canada very soon using the credit card
is the best way to start building your reputation but now let's look at exactly
how your score is calculated in order to maximize your score Equifax and
TransUnion use similar numbers to calculate the score but this is the
breakdown that Equifax uses taken from Borrowell's website you can see that the
biggest chunk of your credit score with 35% is your payment history and this is
step number three always pay your bills on time and in full if you get nothing
else in this video drill this into your head the best way to increase your
credit score is to always pay your bills on time this includes your car loan
payments mortgage internet bill phone bill student loans utilities and your
credit card bill if you are late or you don't pay your full statement balance
you will pay huge late fees even up to 25% for credit cards but your
credit score will also take a huge hit even if you only miss a single payment
your credit score could drop by 90 points that's huge that's why it's so
important to regularly check your credit report for mistakes
also if you miss a payment that hit will stay on your report for up to six years
when it comes to credit cards always pay your monthly balance in full but if you
absolutely can't then pay as much as you can at the very least pay the minimum
payment listed on your statement if you only pay this minimum amount you'll
still be charged with the enormous 25% interest on the debt you owe but at
least your credit score it won't take a hit also if you know that you won't be
able to pay your bill on time don't just ignore it and hope for the best
give them a call and ask if you can get an extension before the due date if
you've been a loyal customer for years and you have a good history of making
your payments the credit card companies will be understanding and they'll be
willing to extend your due date by a week or two without hurting your credit
score there have been times when my credit card bill was due on Wednesday
but I didn't get paid until Friday so I called the credit card companies ahead
of time and explained to them the situation and they let me pay a few days
late it didn't count as a late payment it never showed up in my credit report
and it didn't hurt my credit score at all the second best thing you can do to
boost your credit score is to decrease your credit utilization your credit
utilization makes up 30% of your overall score and you want to keep this
utilization amount as low as possible credit utilization is the percentage of
the total available credit you have that you have already spent just because you
have a credit card $10,000 limit does not mean that you
should be spending this full amount in fact to increase your credit score it's
best to keep your credit utilization below 30% for every single credit card
so if you have a credit card with a $2,000 credit limit but you've already
spent $1,000 this month then you've already used up 50% at any given moment
you want this number to be below 30% of course at the end of the month you will
pay off your statement balance info bringing your utilization down to zero
but until you make that payment your utilization is still sitting at 50% for
a whole month and that is hurting your score one way to fix this is to request
for an increase in your credit limit if your credit limit increases to $5,000
you still owe the same $1000 amount but now you're only using 20% of your
available credit and this increases your credit score whenever your credit card
company offers to increase your credit limit accept that offer don't take this
as an invitation to spend more keep your expenses the same but now you have four
more available credits and so your utilization is significantly better
another thing you can do is use more credit cards that way you can spread out
your purchases among multiple cards instead of having one card with a high
utilization value you'll have two or three cards with a low utilization value
and so your credit score will increase considerably I use a combination of
cards to max out my total cash back as I described in my past videos I use one
card for groceries and bills one card for restaurants one card for foreign
purchases and one card for everything else in this way my monthly expenses are
spread out between multiple cards on top of that if I increase my credit limit on
these cards each card will have a tiny utilization amount less than 10% and
that significantly increased since my credit score the next biggest
contributor to your credit score is your credit history and that accounts for 15%
of your score this basically means that your score increases the longer that
you've had credit it takes time to build up a credit score it won't happen
overnight the one thing you can do to improve your credit history do not
cancel old credit cards if you have two credit cards one you just got last year
and one you've had for five years the one you've had for five years
contributes far more to your credit score because over those five years that
card has proven that you are a reliable customer if you cancel that old card
you'll lose a lot of the benefits you've gained over the years plus now your
total available credit has instantly decreased and so your credit
utilization has instantly increased and that will hurt your credit score
basically you should never cancel an old credit card if you've had it for more
than two years keep that card and use it for a purchase every few months just to
keep it active if that card it doesn't have an annual fee there is no drawback
to keeping it open the only reason you should ever close a credit card is if it
comes with an annual fee and if that feed can no longer be justified let's
say I had a credit card with a $50 annual fee which gave me 2% cash back on
groceries but now I signed up for a better credit card that gives me 4%
4% cashback on groceries like I discussed in a previous video there is
no reason to ever use my old card the new one is better in every way and my
old card is still costing me $50 a year in fees so in that case it is worth
cancelling that old card even if it does hurt my credit score by a little bit
another way to prove that you are responsible with credit is to show that
you can handle multiple types of credit having a good mix of credit is far less
important than the previous five steps but it still does contribute 10% of your
overall score this basically means that it's good diversify your forms of credit
so instead of just having one credit card it's good for your credit score if
you also have a car loan mortgage student loans and a personal loan as
long as you can make the payments for each of these loans also having monthly
phone bills internet bills and utilities will further boost your credit score the
final factor which contributes 10% of your credit score is credit inquiries
remember in step 1 I said that every time you check your credit score on
board oh well or credit karma you are performing a soft inquiry and this does
not hurt your credit score at all you could check your credit score every
minute of every day and nothing would happen but if you do a lot of hard
inquiries this will hurt your credit score by a bit a hard inquiry is
performed every time you apply for a new credit card apply for a mortgage or
apply for a loan if you make one or two hard inquiries in a month you'll barely
notice it for example last month I applied for a new credit card
that's a hard inquiry but I've only dropped my credit score by two points
but if you apply to 10 different credit cards over the course of a week that's a
red flag that maybe you're desperate for money and that will
probably hurt your credit score by 20 or 30 points it's still not a lot since
inquiries only make up 10% of your total score one thing to note if you're buying
a house or a car you're likely shopping around for mortgages
or car loans if you make all these applications within a span of two weeks
the credit bureaus will consider all these applications as a single hard
inquiry and so your score will only drop by two or three points so don't be
afraid to shop around for loans but be strategic and try to time all your
applications within a two week window if you watched my previous video you know
that I love applying to credit cards to take advantage of their generous signup
bonuses and if I don't want to keep the card I cancel it to avoid the annual fee
but I would suggest that if you're planning on applying for a mortgage or a
loan or looking for a new apartment within the next three months then you
can't afford to take any hits on your credit score and so don't bother
applying to any new credit cards until you secure that loan but if you're
living life normally you're not buying a house soon and you're not planning on
any big life changes in the next few months then I say apply those credit
cards and take advantage of those signup bonuses your credit score might drop by
three or four points but that shouldn't affect you at all
and you'll earn yourself $200 to $300 of free bonus money so there you
have it those are the seven steps to improve your credit score in Canada
check your credit score regularly for mistakes ditch the cash and make all
your purchases for the credit card pay all of your bills on time every month
that's the most important one keep your credit utilization below 30% never
cancel old credit cards unless they come with an annual fee don't be afraid to
hold multiple forms of credit and try to limit the number of hard inquiries you
make if you follow these 7 steps you will be increasing your credit score
month after month and it's just a matter of time before you reach that perfect
900 score thanks for watching guys and be sure to LIKE comment and subscribe if
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click the link in the description box below or click the links
on my home page be sure to tune into my next video where I'll be breaking down
what is a DRIP and how you can use a DRIP to automate your investment growth
thanks everyone and I'll see you guys on the next episode of the Canadian in a
T-shirt bye guys