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Boost Your Credit Score: 4 Myths Debunked

~ Tara ~ Leave a comment

Credit scores are an area of personal finance that seem a lot more mysterious than they actually are. Many people believe that improving them is a matter of trial and error and, as a result, there’s a lot of “credit score advice” floating around that can end up doing more harm than good. Four common credit score myths have been rounded up and debunked below:

MYTH #1: You have no control over your credit score

There are a lot of factors that make this myth easy to buy into—credit bureaus keep their exact credit score formulas a secret, you can’t access your credit report whenever you’d like online without paying a fee and it’s possible to be financially stable and still have a miserable score. It’s OK to find credit scores confusing, but if you have an accompanying “there’s nothing I can do about it” mentality, ditch it right now! Your credit score is a reflection of your borrowing and repayment behaviours, and that means you have a lot more control over it than you think.

MYTH #2: There’s a “quick fix” for your credit score

Although junk mail and late night commercials try to convince you otherwise, boosting your credit score doesn’t happen overnight. The good news is that the things you can do to positively influence your score are simple and don’t require a lot of time (or even that much effort!)—but the trade-off is that you’ll have to be patient while waiting for your new good credit habits to take effect. Your credit score is more of a track record than a snapshot, so consistency is key.

MYTH #3: Checking my credit report will negatively affect my score

This myth comes from confusing two different types of credit score inquiries: hard inquiries and soft inquiries. Hard inquiries are made by lenders or credit card companies when you apply for a new line of credit (a loan, a new credit card or a mortgage, for example). Soft inquiries are made by you or by others for background check purposes (a potential employer or landlord, for example). Because hard inquiries suggest you might be taking on more credit soon, they usually lower your score by a few points. Soft inquiries, on the other hand, do not affect your credit score in any way. This means you have nothing to lose by accessing your own score—in fact, doing so will help you understand what your current credit activity looks like and how you can improve it.

Note: there are some situations (like renting a car or a landlord running a credit check) where either a hard inquiry or a soft inquiry can be made. In these cases, it’s a good idea to find out beforehand what kind of inquiry will be made so that you know what to expect.

MYTH #4: Opening or closing a bunch of credit cards will improve my score

Even though these actions are the complete opposite of each other, this myth is still widespread—and very misleading. This is because opening and closing credit cards affects several different aspects of your credit score.

Opening new credit cards gives you more available credit, which in turn lowers your credit utilization ratio. This is a fancy term for the amount of available credit you actually use each month. (For example, if you have one credit card with a $1,000 limit and charge $200 to your credit card that month, your credit utilization ratio is 20%). Lowering your credit utilization ratio is a good thing, so opening new credit cards to boost your score might seem like a solid strategy. But remember those pesky hard inquiries? Opening a bunch of new credit cards means a sudden increase in the number of hard inquiries. Each hard inquiry docks a few points from your score, and if many are made within a short amount of time, it makes you look risky, which can further influence your credit score in a negative way.

So then closing a bunch of accounts must be the way to go, right? Not quite. Depending on the accounts you close, you could unintentionally be raising your credit utilization ratio and shortening the overall length of your credit history. Both of these consequences lower your credit score.

The best approach is to space out any credit account openings or closings. Try to time them in a way that any short-term negative impact on your credit score won’t interfere with an important upcoming car loan or mortgage. Do your research, only apply for credit products you need, and understand what a specific credit card is contributing to your score before making the decision to close it (that first college credit card may have a low limit and no rewards, but if it’s adding a few years on to your credit history, it’s best to keep it in rotation).


5 Identity Theft Jackpots (and How You Can Safeguard Against Them)

~ Tara ~ Leave a comment

Identity theft is nothing new, and yet it still manages to cost its victims billions of dollars (yes, that’s billions with a “b”) globally each year—not to mention the time and hassle involved in recovering a stolen identity.

The good news is that there are tons of things you can do to deter identity thieves. The bad news is that many of us do little beyond choosing a decent password—and some people don’t even bother doing that! Here are the top 5 information jackpots for identity thieves, along with helpful tips on what you can do right now to protect yourself.

  1.  Your Trash Can

Even if you’re really careful about the information you put online, your trash bags and recycling bin can still be an easy target for identity thieves. Dumpster diving may sound old school, but it’s still an easy way for identity thieves to get access to your personal information.

  •  Get a shredder (a basic model will run you $20 to $30 at a big-box store) and use it!
  • Get into the habit of shredding things before throwing them out, especially things like bank statements, expired credit cards, utility bills, cellphone bills, paycheque stubs, old boarding passes and travel itineraries, and ATM receipts.
  • Don’t forget to check your envelopes! Anything with your name and address on it needs to be shredded, too.
  1. Your Phone

Odds are that you’re carrying a lot more in your phone than just your contact list. With smartphone theft on the rise, protect yourself:

  • Have a password-protected lock on your home screen. This is a standard feature on all smartphones for a reason, so take advantage of it! Bonus points if your smartphone also has location tracking (also known as the “find my phone” feature).
  • Public Wi-Fi networks are not secure, so avoid checking your bank accounts or doing your online shopping from the local coffee shop or during your layover at the airport.
  • Do not store sensitive information on your phone—storing passwords or login information in a note-taking app is bad news.
  1. The PIN Pad

It seems like every few months a new point-of-purchase scheme emerges—skimming devices, keystroke loggers, ATM hacking… the list goes on! Here are some good practices for when you’re out and about:

  • When making a purchase, keep your debit or credit card in sight at all times.
  • Use your hand to block the buttons when entering your PIN number, even if there’s no one immediately behind you—a camera can always be watching.
  • Choose a good PIN. Avoid PINs derived from your personal information, like your telephone number, address or birthday. Avoid an easy-to-guess PIN, like the dreaded “1234”.
  • Change up your PIN, especially if you use the same combination for your debit card and for unlocking your cellphone.
  1. Your Mailbox

Like the trash-picker approach mentioned above, mail tampering is a low-tech but relatively easy way for identity thieves to compromise your personal information. Here’s what you can do:

  • Familiarize yourself with your billing cycles. A late credit card statement or a bill that never shows up could be a sign of mail tampering.
  • Identity thieves will sometimes request a change of address to illegally reroute your mail to a different location. If you suddenly stop receiving mail, check with the post office to make sure this isn’t the case.
  • Use a mailbox with a locking system to deter thieves.
  1. Your Computer

You would think that this one would be common knowledge by now, but every so often a virus or scam comes along that trips us up. Stay one step ahead of scammers:

  • Keep your firewall, anti-virus and operating system software up-to-date. No matter how new and fast your laptop is, it still needs protection.
  • Enable spam filters on your email accounts.
  • Look out for sketchy links and emails. Ignore any suspicious password reset requests, unexpected tracking numbers or anything that asks for your personal information via email.
  • Don’t overshare on social media. Do your Facebook friends really need to know what year you were born? Can people tell when no one is home based on your Instagram feed? Keep your accounts private and make sure you’re not accidentally broadcasting sensitive information.

By being aware of the top 5 information jackpots and by implementing these simple strategies, you can keep identity thieves at bay.

Some Choices Matter

~ Tara ~ Leave a comment

Some choices matter – including where you choose to bank. You will probably do more business with your financial institution than any other corporation in your lifetime. So why not take the profits your financial institution makes, and put them to work for you and your community?

Credit score breakdown: what you need to know

~ Tara ~ Leave a comment

You’ve likely heard about credit scores before (thanks to all those commercials with terrible jingles), but what do you actually know about them? How long have they been around? And what’s the deal with checking them?

A credit score is a number (usually between 350 and 800) that represents your creditworthiness. It’s a standardized measurement that financial institutions and credit card companies use to determine risk level when considering issuing you a loan or a credit card. Basically, it provides a snapshot of how likely you are to repay your debts on time. Widespread use of credit scores has made credit more widely available and less expensive for many consumers.

The credit scoring system that we’re familiar with today has been around since the 1980s. Before then, there was no standardized way to measure creditworthiness, so it was up to individual lenders to make judgment calls on whether or not to loan money to someone. The old system was time-consuming, inconsistent and quite biased, so a credit scoring system was introduced.

The FICO score is the best known and most widely used credit score model in North America. It was first introduced in 1989 by FICO, then called Fair, Isaac and Company. It’s also known as the Beacon score in Canada. The FICO model is used by the vast majority of banks and credit grantors, and is based on consumer credit files from the two national credit bureaus: Equifax Canada and TransUnion Canada. Because a consumer’s credit file may contain different information at each of the bureaus, FICO scores can vary, depending on which bureau provides the information to FICO to generate the score.

When credit scores were first introduced, they were used primarily for loaning money. Today, credit scores have much more pull, and that’s why it’s important to understand how they’re calculated. Your monthly car payments, your ability to snag that sweet apartment and even the hiring manager’s decision on that new job you applied for can all be influenced by your credit score.

A credit score of 720 or more is considered prime—this means you’re in good shape. Scores under 625 mean you could be turned down for a loan. Scores in the good-not-great range (625 to 720) might get you loan approval, but your interest rates will be higher than if you had a prime credit score. Nobody likes the idea of paying more money for no reason, so it makes sense to adopt credit habits that will boost your overall score.

Taking the time to familiarize yourself with how credit scores are calculated is the first step in getting a strong score. Each credit bureau uses a slightly different calculation, but the basic breakdown goes like this:

  • 35% is based on payment history. Making payments on time boosts your score.
  • 30% is based on capacity. This is one of the areas where the less you use of your total available credit, the better. If you get close to maxing out all your credit cards or lines of credit, it tanks your score, even if you’re making your payments on time.
  • 15% is based on length of credit. Good credit habits over a long period of time raise your score.
  • 10% is based on new credit. Opening new credit cards (this includes retail credit cards) has a short-term negative effect on your score, so don’t open a whole bunch at once!
  • 10% is based on mix of credit. Having a combination of different types of credit (like revolving credit and installment loans) boosts this part of your score. Credit cards are considered revolving credit, and things like car loans and mortgages are installment loans.

Curious about your credit report? You are entitled to one free credit report per year by mail from Equifax and TransUnion. Spacing out your credit report requests allows you to check on your credit every six months or so. If you can’t wait for a free report by mail, you can always get an instant credit report online from Equifax or TransUnion for approximately $15.

When you receive your credit report, you’ll notice that it does not list your three-digit credit score. Despite this, it’s still a helpful reference because it serves as the basis of your credit score. If you know how a credit score is calculated, then you know how to look for factors on your credit report that might be influencing your score for better or for worse. It’s also an easy way to look at account openings, account closings and what your repayment history looks like.

You can get access to your actual credit score from either Equifax or TransUnion for an additional fee ($20 to $25).

Some commercials make it seem like credit scores are big, mysterious, randomly assigned numbers. But with a little research, a little patience and some good habits, you can influence your credit score in a positive way and not be caught off guard by a denied loan or an outrageous interest rate.