Taking Financial Ownership

The Top 3 Myths About Your Credit Score: Debunked!

Written By: Borrowell

Your credit score may seem complicated – but it doesn’t need to be! At Borrowell, we’ve made credit scores easier to access and understand. As there are still many misconceptions about what goes into a credit score and how to improve it, we’re shedding light on the top three credit score myths with the intent to debunk!


Credit Score Myth #1: Carrying a credit card balance will help your credit score

Carrying a credit card balance doesn’t help your credit score, yet we hear this all the time. If you intentionally carry a balance on your credit card, you could actually hurt your score.

The reason for this lies in something called the credit utilization ratio. It’s the amount of money you owe compared to the total amount you can borrow. This ratio makes up roughly 1/3 of your credit score. The higher your ratio, the more it can hurt your score.

For example, let’s say you have two credit cards: one with a $500 credit limit, owing $100 and the other with a $1,000 credit limit, also owing $100. In this case, your credit utilization ratio works out to about 13% ($200/$1,500).

As you charge more purchases to your credit cards, the ratio would increase; owing $1,000 on $1,500 of available credit would bump up the ratio to 66%. Higher ratios may lead lenders to question your ability to pay back your loan and be responsible with credit.

Paying down balances on credit cards quickly is a smart way to protect your credit utilization ratio and increase your credit score.


Credit Score Myth #2: Having a low credit score means you can’t get a credit card or loan

Those with credit scores below the mid-600s are considered “subprime” in the lending industry. However, many financing companies specialize in extending credit to people with subprime scores.

Better credit scores mean lower interest rates and better terms, so you should aim to make every payment on time.

Did you know that monitoring your credit score may help you improve it? In a recent study, we found a positive relationship between the frequency of credit score monitoring and credit increase over time.

We also found that customers with lower initial scores when they signed up for Borrowell’s free credit monitoring service tended to improve their scores. So monitor that score!


Credit Score Myth #3: Late payments won’t hurt your credit score

From landlords to phone companies, creditors will report your payment history to the two credit bureaus in Canada: Equifax and TransUnion. Past-due utility bills, unpaid traffic fines and parking tickets can also show up as negative items on a credit report and hurt your score. Those negative items could hang around for seven years, so even one small unpaid bill can do a lot of damage.

It’s important to pay all your bills on time to build a solid payment history and boost your credit score. If you have bills past due, contact the companies you owe to make payment arrangements. In some cases, you may be able to negotiate a lower payment amount or break up the total amount due into several smaller payments that fit into your budget.

When possible, setting up automatic bill payments can simplify the process and avoid the harsh penalties.

The bottom line:

Believing in these credit score myths will hurt your credit score. To improve your score, do these three things:

  1. Keep payments on schedule
  2. Monitor your score regularly
  3. Keep your credit utilization low

Improving your credit score and getting back on the road to good financial health takes time. While the journey might be a work in progress, the future reward of lower interest rates and more flexible financing options are definitely worth it.

Borrowell helps Canadians make great decisions about credit. With our free credit score monitoring, personal loans and product recommendations, Borrowell provides the tools to help you improve your financial well-being and be the hero of your credit. Join the over 600,000 Canadians who have received their free credit score!

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