- Hey, welcome back. It's Nolan Matthias, and today I wanna give
you the definitive guide because you know what, I've
been watching the YouTubes, and there's a lot of really
crappy information out there. So I wanna give you the
realities, the hard truths of how to manage your credit,
what works, what doesn't, from somebody who's been in
the industry for 18 years now and actually understands
how credit bureaus work. But before we get into
it, do you me that favor, hit that Subscribe button,
hit that notification bell, and please hit the like
button so more people like you can see that this video, this one is an important one. And as always, make sure
you leave your questions and comments about credit in
the comments section below, I'll get to them as soon as you send them. Okay, so let's talk credit bureaus, because this is a topic that
is widely misunderstood. We've seen all sorts of bad advice on this topic over the years. And I wanna set the record straight on a whole bunch of things, and talk about what really
matters in your credit score. And I wanna start with two
fallacies that I see consistently on the internet right now,
especially on YouTube. And they are one, that
applying for credit cards and credit card hacking so
that you can get rewards is a good idea, because it's not. And two, that you should be
using free credit score apps in order to monitor your credit. And this is a really bad
idea, and I'll tell you why, but first let's talk
about that first piece, which is credit hacking. Credit hacking is one of the things that can handedly reduce
your credit the quickest, because quite frankly, there are two things
wrong with credit hacking. One is it requires you to
be consistently applying for credit, which does
have an adverse effect on your credit, we'll get
to that little bit later on in the video. And two is, the more credit you have, the more inclined you are to use it, which leads a lot of people
who get into credit hacking for things like free rewards, into a lot of financial
trouble down the road. And we've seen this
consistently with clients throughout the years
where somebody comes in and basically has to either
refinance or doesn't qualify for a mortgage because they've
taken somebody's advice on how to get free things
by using credit cards. Let's call a spade a spade right now. If somebody is offering
you something for free, whether it is your credit
score or whether it is flights or whether it is some sort of reward, there's a reason they're doing it, and it's because they
know that if they do, statistically you are going
to end up spending money with them, or in the case of credit cards, you're going to borrow money from them. And that's not just true for
credit card rewards programs, it's also true for these companies that offer free credit score monitoring and free identity theft monitoring. These companies are
doing that for a reason. And the reason why is because
they are using the fact that you're getting your
credit score monitored by them in order to get you to
eventually apply for credit cards with them or loans with
them or mortgages with them. Your free credit score is an avenue for them to sell you debt. So stay away from those
sorts of companies. So how do you really
monitor your credit score? Well, the best way to
monitor your credit score is to go to a place like
Equifax.ca or Transunion.ca and pay to get your credit
score directly from them. And both of these companies
have credit monitoring products, you just have to pay for them
rather than get them for free. But remember, it's just like Facebook, if something's free, if you're
able to use it for free, it isn't the product you are, and that's what these companies that are giving you free credit reports and free credit score
monitoring are doing, is they're using you as the product so that they can sell you credit cards and loans and stuff down the
road, stay away from those. So once you've done to Equifax.ca, once you've gone to TransUnion and you have figured out
what your credit score is, and they've told you all
the things you can do to improve your credit, well, that's when it is time to take action. Now, keep in mind that
Equifax, TransUnion, they're going to have different ways of calculating your scores. In fact, each of those
companies has different ways of calculating score depending
on who's asking for it. So the score that you
see is often gonna be a different score than what
the credit card company sees or what your mortgage broker
sees or what your bank sees. And the reason for this is they just have different
algorithms that they use, and different people,
different companies subscribe to different versions of the algorithm. For us, we subscribe to
what's called beacon nine, so we see a beacon score, it is the latest version
of a beacon score, and it has a higher
emphasis on certain things than it has on other things. And I'll get into that in a second here, when I start talking about what actually affects your credit. So what does affect your credit? Well, there's five specific areas that credit bureaus look at in order to establish your credit. They are, your payment history, your used versus available
credit, your credit history, your public record and your
actual credit inquiries. And we'll go through each
one of these in detail. So let's start with payment history. Payment history makes up
35% of your credit score, and what payment history is,
is exactly what it sounds like. It is your history of
actually making your payments. So if you're new to credit, generally your payment
history is very good, because chances are you
haven't missed a payment yet. However, if you do
eventually miss a payment, that miss payment will
be on your credit bureau for at least seven years. Now, there's different
degrees of miss payments. There's missed by 30 days,
missed by 60 days, missed by 90, 180 and so on and so forth. And typically how this is categorized is as an I1, or an R1 or an I2 or an R2. I1, I2, I3, I4, that refers
to installment payments. R1, R2, R3, R4 refers to revolving credit. And installment payments are
exactly what they sound like. That's when you have
something like a car loan and you have an installment payment that you pay every single
month until it's paid off. And revolving payments are
things like credit cards and lines of credit, where
your credit fluctuates as you borrow more and pay it off, and you obviously have the
option to pay more down as time goes on and draw
more down as time goes on. So an I1 an R1 means that your payment has been made on time. If you go to I2 or R2, it means that you've missed a
payment by at least 30 days. Now, a lot of people believe
that if you miss a payment by one or two days, that
that's a missed payment, and that hurts your credit,
that's not actually true. You actually have a 30 day grace period to make your payments before it starts to affect your credit. So if you see somebody
who has an R2 or an I2 or if you yourself have an I2 or R2, it means that you've missed a
payment by more than 30 days. So you didn't just miss
it on the due date, but you missed it by a whole
month after the due date, and that is when your
credit starts to get hurt. And those R2s, R3s, R4s, those will last on your credit bureau for at least seven years. The only way to get rid of a miss payment on your credit bureau is to wait, and it takes basically seven years. So time is the only cure for miss payments on a credit bureau. And late payments have the
biggest negative effect on your credit score because late payments are the thing that indicates to somebody who's about to give you credit
that you aren't reliable. So the number one thing you can do to keep your credit score
high is to make sure that your payments
always get made on time, bar none if there's anything that you take away from this video, it is this, make your payments on time and your credit will
always be reasonably good. As soon as you miss a payment,
that's when you're starting to get yourself in credit trouble. Now, if you get to an R6, which is basically 180 days late, that is basically when lenders will start to sell your loans to collection agencies, they will basically write
it off on their books, and that's when you'll
start getting calls from the collectors that nobody
likes to get calls from. And here's the thing about that is, once it goes to a collection agency, it's pretty much considered an R9, which is the worst score you can get for a payment of any sort, and that basically means that
you have failed to pay it, and the bank has said,
"Hey, we're done with him." And then you end up with this thing that additionally hurts your credit, which is the collection, because collection show on
your credit bureau as well. And those have a significantly
bad impact as well. Now, the types of things
that we typically see on a credit bureau that do a ton of damage to somebody's credit are collections from two types of organizations. One, is cell phone companies,
and two is ambulances. So if you get into a feud
with a cell phone company about whether or not they overcharged you, the best course of action is not to say, "I'm not going to pay you." The best course of action is to pay them and then continue to fight
them after you paid them, because telephone companies
will damage your credit, they have no hesitation in doing so, and it is the number one
way that we see people get their credit score,
absolutely screwed. And the big thing you need to understand about collections as well is, you're probably not getting a credit card or a loan until that
collection is shown as paid. So the collections agencies
know that the chances of you being able to get
something like a mortgage are slim to none until you
make right on that credit. So they will get their
money money eventually, so it is best to pay
them and then fight them after you paid them so that
they don't damage your credit. And by the way, Equifax, TransUnion, you can go to them and say,
this isn't fair all you want, but there's a really good chance that if the credit card
company, the telephone company, whoever it is, and the collection agency that can show that
they've tried to get you to make the payments
and you haven't done so, there's a really good chance
that Equifax and TransUnion are going to do absolutely
nothing to help you. So again, make your payments whether you think they're fair or not, make the payments, make the
payments, make the payments. Now, the second thing
that affects your credit is your use versus available credit ratio. And this accounts for
30% of your credit score. And in recent years, this has been one that we've seen do a ton of
damage to people unexpectedly because it used to be not as
big of a factor, but now it is. And what your used versus
available credit ratio shows is your utilization. So if you've got, let's say,
a $10,000 line of credit, and you're constantly using $10,000 of it, well, what that tells the
credit bureau agencies is that there's a good chance, you are going to run out of your ability to make your payments because
you're using so much credit. So what they wanna see is they wanna see low credit utilization. If you've got 10, 15, $20,000
available to you in credit, they wanna see you use
1000 or 2000 or $5,000, not the entirety of your
credit that's available to you, because what they say is
that the number one indicator of whether or not somebody is going to get into financial trouble is the amount of credit
that they've started to use. And obviously in Canada, this
has been a huge discussion over the last several years,
where Canadian debt ratios are so high, and as a result, Equifax and TransUnion recognize this, and now they're giving
that a higher factor in credit score algorithms to make sure that it's accounted for in
somebody's risk profile. Now, this is a number that you can gain. So the fastest way to
increase your credit score is to play around with this
credit utilization number. And the way that you
do it is by making sure that you have less credit utilized. So ways you can do that is by paying down your existing credit or applying
carefully for new credit. So basically, the first
strategy is to pay down as much credit as you can. And within 30 to 60 days once
you've paid down credit cards and lines of credit that you've
utilized to a high extent, well, then your credit
will start to increase. Now, the other way, again,
is to apply for new credit. We typically don't wanna see
people apply for new credit unless they absolutely need it. But this is one way to
kind of game the system. If you apply for a new
credit card, a new loan, a new line of credit, that will increase your available credit. And ultimately, if you aren't using it, will help increase your credit score. Now, the thing you need
to watch out for is, if you're at high utilization rates and you start applying for more credit, well, what that tells the credit agency is that you're in trouble
and you need more credit, and that will actually do more damage to your score than good. So that first strategy of paying down your credit always works. The second strategy of
applying for more credit to get that utilization ratio
changed up a little bit. That one can be dangerous and doesn't necessarily work all the time. In fact, it can do more harm than good. But, let's say you get something
like a preapproval letter for a free credit card where they say no credit checks required, or you get the ability
to get a free credit card or a free line of credit with
a mortgage or bank account, well, it's always a good
idea to accept those offers as long as there's no
fees associated with them, because that will increase
your available credit and will ultimately
increase your credit score. As long as you don't actually end up using those credit
cards or lines of credit that they've been offered. And the third factor that
goes into your credit score is your credit history. And this is basically how long your credit has been established. Now, a lot of the times we see people upgrading credit cards,
getting new credit cards, and they have this old
MasterCard or this old visa or something that they
haven't used in 15, 20 years, and they go, you know, I haven't used it, because I've got a
better Aeroplan card now or I've got a better card
that gives me a better reward, so I'm gonna shut down
that original credit card. That's a bad idea. What you wanna do, is
you wanna try to maintain your longest standing credit facilities. And what I mean by that is, if you get a credit
card that you opened up when you're 18 years old, and you've held onto it
for the last 20 years, well, that 20 year timeframe
adds to your credit history and that helps increase your credit score. Now, the fourth thing, and
this makes up about 10% of your credit score is public records. Now these are things like
collections and bankruptcies. Now, public records make up about 10%, but don't let that fool you,
because if you've gotten to the point where you've
got a public record or a collection, there's
a really good chance, there's a lot of other
stuff on your credit that's gone really bad. You've missed payments,
you've got high utilization, And at this point, your
credit is really bad, and it's probably gonna be a seven to 10 year
rebuilding process for you. So the key here is to make
sure that there's never a public record filed on your credit. If you get a call from
a collection agency, if you know you're getting
behind on your bills, do everything you can to make sure that you don't have to declare bankruptcy, that you don't have a collection. And buy by the way, consumer proposals. Consumer proposal agencies will tell you that this is better than a bankruptcy, it won't affect your mortgage, it doesn't affect your credit as much. It does, it makes it as
equally as hard to get credit as a bankruptcy does,
they aren't good things, they do not help you,
there are better options. If you can avoid a consumer proposal, do so at all costs, avoid
these like the plague, they're not a good thing, no matter what the consumer proposal
company tries to tell you. If you have to, if you
absolutely absolutely have to, fine, do it, but don't think that just because you get a month
or two behind on your payment, and things are a little bit
tough, that this is a good idea, because there's a really
good chance that it's not. And the fifth thing that
affects your credit, and this is probably
the most misunderstood of the five, is inquiries. And this makes up about another
10% of your credit score. And this is the reason why
we were so adamantly opposed to credit card hacking, is because, inquiries can hurt your credit and they can affect it quite negatively. And we have seen people on many occasions who have made every single payment, who have low credit utilization but have a ton of credit cards and a lot of inquiries
because they've done something like credit hacking, or
people who like to go and shop for cars and
go in every single month and let the let the
dealerships run their credit. These types of activities definitely do damage to your credit. It doesn't matter what the
experts on YouTube tell you, applying for credit when you don't need it is a bad idea unless you
have no credit at all. Now, that's not to say that
when you do need credit that you shouldn't go and shop for credit, because one of the
things that we often see with clients is, they feel
like if they apply with us and then they apply with their bank, and then they apply with another broker, that's going to do damage to their credit, well, it won't, because credit bureaus and the algorithms are smart. What they realize is that when
people go to apply for credit that they should have the right
to shop, and that they will. So typically if you're going
and looking for a mortgage, and you apply it several different places that have mortgage
credit bureau pole codes. Well, those poles will all be counted as one rather than as four or five. So you do have the right to shop, and shopping with multiple places will not affect your credit
in a super negative way. You know, what will is if you apply for a mortgage every month
for 12 to 15 months in a row, but if you're applying once and then maybe doing a recheck
four months down the road to actually get the mortgage, when you go to purchase a property, that stuff won't hurt you. It's when you apply over
and over and over again for doing things like credit
card hacking that you get hurt. The other thing to note
is that there are things like soft and hard hits. When you go and ask for your
credit for the companies that do the free credit
score monitoring stuff, when you ask for it from
Equifax or TransUnion, or when your bank does a soft hit to see if you're still worthy of credit from them and to maybe make you
offers in the future, those things won't affect your credit. What will affect your credit
is when you apply for credit, when you apply for loans,
when you apply for mortgages, when you apply for lines
of credit or credit cards, those things will affect your credit. However, a single inquiry
isn't going to hurt you enough to drop your credit score
from 750 down to 620, it might drop it a point or two. Now, let's talk real
quickly about credit scores, because there's a lot of
misinformation around this as well. What constitutes a good
credit score in Canada? Well, anything over
680 is considered good, and that will pretty much
get you the best rates, the best options, the
best debt servicing ratios across the board. So if you've got over 680 beacon score, you're probably going to be okay. Between 620 and 680,
that's where things get a little bit iffy, you may not be able to
qualify for as well much. Will you pay a higher interest rate? Probably not, mostly
companies don't charge a higher interest rate
between 620 and 680, but it's a possibility. Now, under 620, this is where
you start to get into issues, this is where it starts to
become hard to get a loan. And because it's hard to get
a loan, the price goes up, that's where you start getting charged a higher interest rate. If you're between 550 and 620, can you improve your credit score and get it back up into
that 650 to 700 range? Yes, it's definitely possible. Once you get below 550, you've probably got a lot of work to do. And it's probably going to be a matter of making sure going forward that you always make
your payments on time, and making sure that
you do so for at least a seven to 10 year period, because once you're under
that 550 beacon score, it's probably gonna take a lot of time and a lot of effort to
get your credit score back to where it needs to be. So around this whole thing
out, what are the things you can do to make sure
your credit stays good? Well, first of all, avoid miss payments, avoid consumer proposals,
avoid collections, avoid bankruptcies,
basically avoid anything that has to do with missing a payment. The second thing is make sure you keep your utilization rates low. So borrow far less than what
you have available to you. The third thing is don't shut
down those old credit cards, they are helping you. By the way, don't shut
down any old credit cards or any lines of credit, because
the longer you have them, the more available credit
that means you have, and the better your credit score will be. And the fourth is, don't apply for credit
that you don't need. If you've got a good credit score, if you've got all the
credit that you need, don't apply for more, there's no point. Now, if you've got under
$2,000 in credit cards available to you, and you've had less than
two years history on them, does it make sense to
maybe apply for another one and get a little bit
more available to you? Absolutely, but outside of that, there's really no reason
to apply for a loan that you don't need or a credit
card that you don't need. And sure as hell, don't
do credit card hacking, that's just silly. So if you found this video useful, if you found it interesting, if you found you learned a whole bunch about credit that you didn't
know, do me that favor, hit that Subscribe button,
hit that notification bell, and please hit that Like
button so more people like you can see this video. This is definitely an important one. And please, please, please
do me that other favor, comment in the comment section below, ask me your credit questions, leave me your credit comments, and we'll see you on the very next video. Cheers.
