Your credit score is one of the biggest indicators of your financial health. Keeping a strong score indicates that you are being actively responsible for your money, knowing where it needs to go and when.
Credit scores are affected by a wide range of factors, but are most dependent on whether or not you have paid your financial obligations, such as loans and recurring bills, on time and in full.
Getting to Know Your Score
If you don’t know your score, it’s easy to find out! Credit scores are calculated by several major Canadian agencies: Equifax and TransUnion are the most widely recognized. You can contact either agency to get an immediate report of your score, though this request may come with a processing fee. This fee is waived if you are willing to wait for a report to be mailed to you.
Your credit score will range between 300 to 900 points. A score of 300 would be assigned to someone who is just getting started as a Canadian financial consumer. For example, they may have immigrated recently, have no Canadian credit history, and have just begun setting up their bank accounts. A score of 900 is about as close to perfect as you can get, but realistically this top tier of scores applies to any score above 720. At this level, you will qualify for the best rates on major financial products like loans and mortgages. The majority of Canadians sit somewhere within a handful of points of 650, according to TransUnion reports.
How Do Collections Items Affect Your Credit Score?
When an unsecured debt obligation such as a credit card bill or personal loan goes unpaid for a long period of time, it may be sold to a collections agency who will attempt to collect on it. Once an account is sold to a collection agency, the collection account can then be reported as a separate account on your credit report.
Collection accounts have a serious negative impact on your credit scores. Once an item goes into collections, it will immediately reduce your credit score, and will remain on your credit report for up to seven years from the original delinquency date. Even if the debt is eventually paid, the record of having had an item go to collections will remain on your report. You simply have to wait for it to expire – and, even when it does, any debt that you may still not have paid does not simply vanish.
If you ever have a late payment go to collections, it is important to pay it down whenever you can. Doing so will have a small positive impact on your credit score, although it will likely not be enough to bring the score back to its pre-delinquency level. More importantly, paying off an item in collections shows that you are willing to comply, co-operate and make strides to work on your financial health. Showing this initiative may help potential lenders see you in a better light, despite your lowered credit score.
Did you know Progressa can help rebuild your credit?
We report your re-payment history to TransUnion which helps establish and build your credit score. Sign up now to get free access to your credit report.