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By Richard Moxley
Special to the Financial Independence Hub
This might sound weird, as our society has become obsessed with this mystical three-digit number, but it is true. Chasing a high credit score is really a waste of time and money. Here’s why.
The score you have access to is not the one the bank uses
While I agree that having good credit is extremely important, the score can be very deceiving. The biggest problem is that consumers do not have access to the credit score that the banks uses. I know that sounds weird and it shocks everyone when they hear it, but Equifax has recently updated its website with the following notice:
The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties may use a different scorewhen evaluating your creditworthiness. (Emphasis mine)
As you can see, the credit score you have access to as a consumer is for “educational” purposes only and can be completely different than what a lender will see.
For example, when you log onto your profile with your bank or a third-party app like Borrowell, Credit Karma, or Mogo the three-digit number you see is for “educational” purposes and not the score the bank will use on your next credit application. It is even worse, when you find out that the score you are paying for directly on Equifax.ca and TransUnion.ca is not what your lenders uses. Unfortunately, it is common to see over a 100-point difference between the “educational score” and what the bank actually uses. This is just one reason why the credit score provided to Canadians is very misleading.
A high score doesn’t mean you have good credit
An 800-credit score (which is really good) doesn’t mean you’ve been approved for best rates and terms. The score is just one aspect the banks are looking for.
Think of it like graduating high school on a job application. It is generally a bare minimum requirement for most jobs, but most employers are looking for much more. The banks and lenders are looking for other very specific qualifications in addition to a high credit score before considering you to have good credit. It takes a lot more than just paying your bills on time to have a high credit score.
How to WIN at the credit game
When I was a high-volume mortgage broker for 8 years, I met with many people who thought they had great credit and ended up having to pay higher rates, fees, or were declined. Over the last decade, helping Canadians rebuild and fix their credit, I have seen thousands fall victim to common credit pitfalls.
There is a lot of hype around this subject but a lot of the information is misleading. A high credit score is not winning the credit game. The real prize is to not be restricted or embarrassed in any way and to always qualify for the best rates and terms. Just like any other game, if you don’t understand all the rules of credit, it will be confusing, frustrating, and very difficult. The next time you look at your report, look past the score and make sure all the account information is correct. Instead of assuming you have good credit just because you have a high score, spend some time looking into the rules of the credit game. Once you know all the rules you can play the credit game to win and have some fun along the way.
Richard Moxley is one of Canada’s leading authorities on personal credit and focuses full-time on helping Canadians fix, understand, and improve their credit. He is the bestselling author of The Nine Rules of Credit, and the newly published The Credit Game – Rules Every Canadian Must Know to Win. Moxley is a Certified Bankruptcy and Insolvency Counsellor and winner of the Financial Literacy of the Year award in 2015
