By Richard Moxley, eCreditFix.ca
Special to the Financial Independence Hub
Congratulations – Your credit score has just gone up!
I would love to say it increased just because you are reading this article but in reality it is because Equifax has implemented a change in its algorithm (the computer scoring system that banks use to predict the chances of you paying on time).
These changes have had a huge impact on the report and 80 per cent of Canadians have seen a jump in their personal credit score. So if you were declined for financing previously, you might want to try again.
Here are some of the main changes that have been made:
Mortgage Payments now affect your credit score
As of June, your mortgage payment history now affects your credit score. If you are like most Canadians and paying your mortgage is top priority, then this will be one of the main reasons why your score has jumped.
Lines of Credit report different than your Credit Card
Before the recent changes, a high balance (any balance over half of the limit) on a line of credit or a credit card would lower your score the same amount. Now, a high balance on your line of credit will not hurt your score as much as if you have a high balance on a credit card.
This is a welcome change as it is much more indicative of how consumers carry debt. It makes more sense that you would keep you debt on the lowest interest rate, generally found on a line of credit instead of a credit card. This update also helps Canadians who have a Home Equity Line of Credit (HELOC) instead of or in combination with their mortgage. Before, Equifax used to penalize those who had a HELOC with a maxed out or a high balance but not for those with a mortgage. Of course, it’s always better to have a 0 balance on your line of credit or HELOC but at least now the higher balances are not hurting your score near as much.
Cell Phone payments now affect your credit
If you have a tendency to be late or not pay your cell phone bill in full each month, unfortunately, now you will be losing points off your credit score. Most cell phone providers will tell customers that they are okay with a partial payment with the promise to catch up next month.
However, regardless of what they tell you on the phone, unless you pay your bill in full every month, the computer system will automatically report it as a late payment to Equifax and TransUnion. You may look at a cell phone bill as just an insignificant payment but future lenders do not share your perspective. Prospective banks and lenders will see any past late payment, no matter how insignificant they may seem to you, as a higher risk of future late payments and default problems with them. Higher risk for the lenders means getting declined or higher rates and fees for you.
To catch all the other recent changes and “insider secrets” on how to start, rebuild or always maintain great credit, check out the entertaining short clips now available on www.CreditTV.ca.
Richard Moxley is the Author of the book, The Nine Rules of Credit – How to Start, Rebuild, and Always Maintain Great Credit. He is also the founder of eCreditFix.ca and host of Credit T.V. Richard has shared his credit expertise with financial professionals and the public across Canada and the U.S. His vision is to teach all Canadians the rules of the “Credit Game” so they can play to win!