Credit scores serve as the numerical representation of financial responsibility, allowing lenders to determine just how assiduous borrowers are about making their payments on time. However, a new poll suggests that a considerable chunk of Canadians aren’t altogether interested in – or oblivious to – monitoring their credit scores to ensure that they’re in sound shape.
Nearly 60 percent of Canadian consumers – 57 percent – say that they’ve never bothered to so much as look up their credit score, according to a newly released poll conducted by Ipsos and commissioned by Capital One Canada. What’s more, among those who have determined what their scores are, 43 percent indicate they obtained it from a financial institution, rather than an online resource or credit agency. It’s an indication that instead of consumers being fastidious about their degree of creditworthiness, they’re only interested in it when they need to know it.
Shane Holdaway, president of Capital One Canada, noted that there’s a laundry list of reasons as to why proactively tracking one’s credit score is not only highly recommended but essential.
“A strong credit score makes many important life milestones, like renting that first apartment or buying that first car or home, a real possibility,” Holdaway said. “We want to help our customers reach those goals.”
To make obtaining one credit score easier, Capital One Canada recently launched an online tool that provides users with their credit score with a few keystrokes.
Paying more than minimum amount can bring dividends
One of the most effective ways in which to raise one’s credit score is by taking care of balances promptly, like those placed on a credit card, before the due date. Ideally, payments should be made in full. According to a recent survey conducted by TransUnion, nearly 88 percent of polled respondents said that they “often” pay an amount that’s larger than the minimum due. However, 40 percent of the survey’s participants said that they didn’t realize that paying debts off in full was advantageous to their overall creditworthiness.
TransUnion used the following as an example. Suppose a consumer is spending $400 in monthly payments to settle debts on three credit cards, when the minimum due is $200. This translates to a Total Payment Ratio of 2.0. TPR is a metric that the credit agency uses to analyze borrower performance on loans. But if the same consumer were to spend $1,200 for these credit cards, that would result in a TPR of 6.0.
Ezra Becker, senior vice president of global research at TransUnion, indicated that these advantages are available to anyone and everyone that uses credit for purchase needs.
“Our research shows that consumers across the globe – be it in North America or Asia – can benefit from paying more than the minimum due,” Becker explained. “This may sound intuitive – consumers who are able to pay more usually have more liquidity and therefore are less likely to miss payments. But it is the quantification of this intuition that is important.”
TPR assesses chances of delinquency
Credit agencies use metrics like TPR to assess how at risk borrowers are of defaulting. The higher the number, the greater the chances.
Responsibly using a variety of credit forms is another way to strengthen creditworthiness, such as a mortgage or financing a vehicle. Financial experts say that this strategy is more effective than using multiple credit cards. Interestingly, Canadians seem to be using fewer credit cards these days. Last year, open and active credit card use decreased by roughly 800,000, according to TransUnion’s most recent Canada Industry Insights Report, bringing the total volume to 43.4 million credit cards from 44.2 million during the fourth quarter of 2015. Regardless, credit card balances are growing, averaging roughly $4,100 per borrower in the fourth quarter of 2016, up from $4,000 during the previous year’s concluding three-month period.