I don’t know who else needs to hear this, but chasing a perfect credit score is a waste of time and money.
There are definitely minimum scores that people should keep in mind — there is no disputing that the “higher your score, the more trustworthy you seem to banks, lenders, employers, even landlords.”
But a high credit score doesn't guarantee that you're going to get approved for the best rates and terms.
As a former mortgage broker for eight years — Richard Moxley, author of The Credit Game — told me he saw countless times where a high credit score was on the application but the prospective homeowners would still get declined for a loan.
“The amount of debt, how long the credit has been established, how many credit accounts are open, and what types of credit you have can be more important than your score,” Moxley said.
Generally speaking, a bad credit score is a score of 574 or less and a good credit score is 650. Scores max out at 900.
Today, Moxley gets a lot of calls with people freaking out because their score has dropped by a few points, yet they’re sitting comfortably at the higher end of the spectrum.
“A high credit score is not enough for the banks to consider you to have good credit. If consumers are just looking at the score, instead of understanding what it takes to qualify for the best rates and terms, they are going to miss out.”
Credit worthiness is a big factor when it comes to loan approval and favourable interest terms. Any items, comments, notes on the file can make a difference. For example, a 680 score with a collection item could be less favourable to lenders than a 645 score with a clean credit history.
Here’s why you should focus on your overall credit health instead of obsessing over your credit score:
There are multiple scores
In case you missed it — “there is no single credit score for a Canadian consumer, there are many scores created from algorithms that can be quite different,” CBC Marketplace revealed back in October 2019.
“The same consumer is likely to get significantly different credit scores from different websites — and chances are none of those scores actually matches the one lenders consult when deciding your financial fate.”
If you're paying Equifax or TransUnion for the monthly monitoring service just to know what your score is, that is a waste of money because there are credit scores that are meant for lenders only and are not available for consumers to buy or receive for free in Canada, Moxley explained.
In other words, the score that a consumer has access to is not even the one that a bank or lender uses.
Moxley also comes across people that take out loans and different products trying to game the score.
“Specifically getting into more debt just to improve your credit score is also a waste of money,” Moxley added.
It’s a waste of time to obsess over your credit score because it changes on a regular basis.
“A lot of people assume everybody starts with a perfect score and you start to lose points if you miss a payment or something like that,” Julie Kuzmic, director of consumer advocacy, Equifax, said in a phone interview.
“But the calculations are far more complicated than that and they're designed to have wide ranges so to account for a lot of different scenarios. Scores are changing all the time as new information is reported to the credit bureaus.”
“Equifax and TransUnion only receive a snapshot from your credit card once every 30 to 90 days,” Moxley added.
Generally speaking, that snapshot doesn't happen at the statement date or at the beginning of the month, so it catches people when they're most vulnerable, or when they're typically at their highest amounts.
“And that snapshot is what's controlling the score as much as paying your bills on time.”
It’s not a moral judgment
“A credit score isn't an assessment of your worth as an individual, Kuzmic said.
“You can be a good person and have a bad credit score.”
This is a good reminder for the people who might be on the lower end of the spectrum and working to try to rebuild their credit.
“I don't want to say, ‘don't worry about your credit score, it doesn't matter’,” Kuzmic cautioned.
“For the person who is at the higher end (750 to 900). Don't worry about your credit score, you're doing well.”
For the person who's at like, 580, it could be harder for you to get approved for certain credit cards or qualify for a loan or mortgage. It could even affect your ability to rent a home or apartment or get hired for a job.
But Kuzmic wants to give an encouraging message: “hang in there because over time, it really will improve as negative things that have happened (like a missed or late payment), get further and further into the past.”
“The hard part is that people are trying to pinpoint what's happening with their score,” Moxley said. “But if they would just focus on what I call the rules of the credit game, then they wouldn't have to worry about any of that.”
Moxley said instead of obsessing over your credit score you should be asking yourself “how do I get approved for the best rates and best terms?”
According to both Moxley and Kuzmic, the one surefire way to improve your credit is to make your payments on time.
Payment history is always the biggest contribution towards your score because the thing that's most predictive of future behavior is past behavior, Kuzmic concluded.