4 Common Behaviours That Can Knock Your Credit Rating in Canada

29 October 2015

In Canada, your ability to borrow money at an affordable rate depends on the health of your credit. Lenders who see a high credit score are more likely to trust borrowers with the loan they need to finance their dream home or car. To keep your credit rating strong, knowledge and discipline are paramount. Here are 4 behaviours that can hurt your credit without you realizing.

Missing non-debt payments

While most borrowers know that making their credit card or mortgage payments late will damage their credit scores, few realize that neglecting to make non-debt payments, such as rent and utilities, on time, can hurt their scores as well. If you consistently miss payments, your landlord or utilities provider can report your unreliable track record to the credit bureaus. Similarly, if renters fail to make their final payments or turn off their utilities, the outstanding balance may be sold to a collection agency, which can further damage your credit rating.

Ignoring fines

While seemingly unrelated to your credit behaviour, failing to pay parking tickets or library overdue fines can chip away at your credit score. If the due date passes by without payment, collection agencies may be called to handle the balance, which can knock your score.

Authorizing hard inquiries

Checking your own credit report, known as a soft inquiry, does not impact your credit rating in Canada. A hard inquiry, on the other hand, is initiated whenever a potential lender accesses your credit file. These types of inquiries can damage your credit score, and typically stay on your file for two years.

Here are a few examples of hard inquiries you might not expect:

  • New cell phone: Your cell phone company may initiate a hard inquiry to check your creditworthiness before offering you a contract.
  • Request for credit limit increase: If you request a limit increase, the lender may pull your credit. To avoid the hard inquiry, you might prefer to either wait until you’re offered an increase or take a smaller increase that doesn’t require a hard pull.
  • Renting a car with a debit card: If you rent a car using debit instead of credit, you usually authorize the rental car company to check your credit score. Read your rental agreement thoroughly to be sure.
  • You are a victim of credit fraud

    While many consumers take steps to actively avoid the above mistakes, far fewer proactively protect themselves from credit card fraud despite its potential to be much more detrimental to your credit rating. If an identity thief obtains your financial information, he or she could open new lines of credit in your name. Without regard for making payments or maintaining a responsible balance to limit ratio, the fraudster could do significant damage to your credit score before you even realize your information has been compromised. To help you stay up to date on the security of your credit, a credit monitoring service can notify you of certain activity on your account that may indicate fraud.