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credit bureau Myth
May 16, 2024
Debunking Common Myths About Credit Bureaus in Canada: Top 5 Misconceptions and Their Solutions
Navigating the complexities of credit reports and scores can be daunting, especially with the many misconceptions surrounding credit bureaus in Canada. Understanding what's true and what's not is crucial to managing your credit effectively. Here, we debunk the top five myths about credit bureaus in Canada and offer practical solutions to help you maintain a healthy credit score.
Myth 1: Checking Your Credit Report Hurts Your Credit Score
The Reality: Many Canadians hesitate to check their credit reports for fear of damaging their credit scores. This is a myth. When you check your own credit score, it results in what's known as a "soft inquiry," which does not affect your credit score. Only "hard inquiries," which occur when lenders check your credit as part of a lending decision, can impact your score.
Solution: Regularly check your credit report for accuracy and to understand your credit health. You can obtain a free copy of your credit report annually from major credit bureaus like Equifax and TransUnion.
Myth 2: Credit Bureaus Decide Whether You Get Loans
The Reality: Credit bureaus do not make lending decisions. They simply collect and maintain credit information that lenders use as part of their decision-making process. The decision to grant or deny credit lies with the lender.
Solution: To improve your chances of getting approved for loans, focus on maintaining good credit habits like paying bills on time and keeping your credit utilization low.
Myth 3: Closing Old Credit Accounts Boosts Your Credit Score
The Reality: Closing old or inactive credit accounts can actually hurt your credit score. Part of your credit score is determined by the length of your credit history and the age of your accounts.
Solution: Keep older accounts open, even if you're not using them frequently, to benefit from a longer credit history. Just make sure they don't have high fees that outweigh the benefits.
Myth 4: All Debts Are Equally Damaging to Your Credit Score
The Reality: Not all debts are viewed equally. For instance, high levels of credit card debt can be more detrimental than a mortgage with the same balance because credit scoring models consider factors like the type of debt and your credit utilization ratio.
Solution: Prioritize paying down high-interest, revolving debts like credit cards first, and keep your overall debt levels manageable.
Myth 5: Paying Off Negative Records Removes Them from Your Credit Report
The Reality: Paying off debts in collections or settling other negative financial records does not remove them from your credit report. Most negative information will remain on your credit report for up to six or seven years from the date of first delinquency.
Solution: Focus on building a positive credit history moving forward. Consistently making payments on time and reducing your total debt load can help mitigate the impact of past negatives.
Final Thoughts
Understanding the true role and function of credit bureaus can demystify much of the anxiety surrounding credit scores and reports. By debunking these myths and applying practical solutions, Canadians can take more effective control of their financial health. Regular education and proactive management of your credit are key to ensuring you're in the best possible position when it comes to borrowing.
If you have specific questions about your credit or need further assistance understanding your credit report, consider speaking with a financial advisor or a credit counsellor. They can provide personalized advice tailored to your financial situation.
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