You missed a payment. Maybe the cable bill has slipped behind the desk or the postal strike means you have not received your mobile phone bill. Maybe an emergency expense came up and you did not have the money to pay for your utilities last month. Whatever the reason, you did not make a payment on time. Do you know how this will affect your credit rating?
To answer this question, let’s look at how our solvency is measured in Canada.
What is a credit report?
Your credit file contains personal information such as your social insurance number, date of birth, current and previous address, and employment history. It will also include detailed information about your credit accounts, credit history and payment information. When you apply for a mortgage or other type of credit, lenders use this information to approve or deny your request. Homeowners can also check your credit report to decide whether or not you can pay your rent, and employers can take a look before choosing to hire (depending on the sector in which you work).
What is a credit rating?
Credit reporting agencies use your financial information to calculate a score between 300 and 900, which gives you a rating from low to excellent. Credit providers use this information, as well as their own slightly different calculations to determine whether you present a risk or not. Typically, a score above 650 will get you approved. If your score is lower, you could be considered high risk. The exact numbers may vary and lenders may consider factors other than your credit score.
It is important to note that the history of your payments has a lot of weight – up to 35% of your credit score.
Where can I see my credit report?
Canada has two official credit reporting agencies. You can request your credit report, annually, at each of these agencies, at no cost, if you do it by mail. This is a great way to check for accuracy and make the necessary corrections. In fact, we recommend that you request a report from both rating agencies as they each contain slightly different information.
Unfortunately, free records do not include your credit rating, but both agencies will provide instant and online access to your combined credit report and credit rating for a fee. Recently, it has become even easier to access your credit rating and for free. As part of their overall marketing strategies, many companies have partnered with credit bureaus. They attract new customers by providing credit files and / or scores for free, whether you choose to use their services or not. New customers are flocking, consumers are getting free, and credit reporting agencies are getting fees for every request. Everyone wins. When you ask for your credit report or rating, there is no impact on your credit rating.
How can a late payment affect my credit rating?
Late payments permanently affect your credit report and have a negative impact on your score. You will want to avoid them if you can. You may be relieved to learn that not all late payments will be recorded in your file. Each credit account in your file is assigned a number between 0 and 9. 0 indicates a brand new account, 1 means that you pay your bill within 30 days or on the agreed terms and 9 means that your account has been recovered. or bankrupt. You really want to see your accounts sit at 1. The good news is that you will only see a late payment on an account if it is more than 30 days late. If you catch it in time, you can keep your excellent credit rating.
If a late payment affects your credit report, its impact will depend on several factors:
- How much delay? The longer it stays unpaid, the more negatively it will affect your score.
- How often? Creditors will determine whether it is a one-time event or a habit that increases your level of risk.
- How recent? Recently missed payments can be a wake-up call for a lender, suggesting that you are in financial difficulty and may not be able to pay your debts.
How can I repair my credit rating?
No matter what mistakes you made in the past, from late payment to complete bankruptcy, you can still improve your credit score. It may take time, but your patience and diligence will bear fruit. Here are some things you can do to get your credit score back to where you need it:
- Pay the missed bills as soon as possible before they hurt you anymore.
- If you miss payments because you can not afford them, set a budget and ask for help if you need it to get your finances back.
- If the problem is disruption, you can use calendars, phone reminders, account alerts, and automatic payments to help you make these payments on time.
- If you have credit, use it, but make sure you pay it before the payment due date. If you can not pay the full balance, pay at least the minimum and always pay on time.
- If you are trying to reinstate your credit, ask for a secured credit card in which you pay a deposit before you can use it. The funds you provide may not be as high as your credit limit. Start with a small limit and use it responsibly.
- This can be tempting, but you should avoid maximizing your credit cards. Try to stay below 30% of your credit limit to not hurt your credit rating.
If you move, be sure to update all your accounts with your new mailing address. In this way, you avoid missing payments due to lost mail. You can also set up online accounts and notifications to make sure you see your bill or statement and pay for it on time
Keep your credit report in the eye
Whether your score is bad or excellent, it’s important to keep control of your credit. For a fee, you can monitor your business. Some banks and credit card companies also provide monitoring services, sending you alerts when credit history surveys are conducted or when potentially fraudulent activities occur. Monitor for errors such as changes to your personal information or new accounts that you do not recognize and correct them immediately. Regularly ensuring the accuracy of your credit information can help you control your credit usage and prevent identity problems and theft in the future.