Think you know if you have good or bad credit? True North Mortgage quizzes your credit knowledge with their Canadian Credit Test.
The current financial situation in Canada has been dubbed the “credit crunch” as global financial institutions felt the pinch and many companies have gone bust as a result of a lack of credit. This has filtered down to Canadian consumers and banks are now tightening lending criteria – even to customers who have good credit. But do you know what it means to have better credit?
We’ve designed a quick test to check your credit knowledge. Take a look at 5 different scenarios and check the answers at the bottom of the post.
Canadian credit test
1. If everything else was equal – who would have better credit?
Meet Cindy. She has a Visa credit card with a $5,000 limit and normally charges $4,500 to the card on a monthly basis. She is very vigilant and makes sure she always pays off her monthly balance.
Meet Jim. He has a $15,000 limit on his Platinum Visa card and usually has a monthly average balance of about $10,500. Jim is more relaxed about his credit balance and only pays off the minimum payment he can get away with each month.
2. If everything else was equal – who would have better credit?
Frankie has over $250,000 in his RRSP accounts and over $150,000 in various savings accounts He also pays for everything with cash and doesn’t have any debt or credit cards of any kind.
Svetlana has 3 credit cards and routinely carries over $25,000 in debt. She only has total savings of $500, resulting in a negative net worth of $24,500.
3. If everything else was equal – who would have better credit?
Lisa just got a new job at the local burger joint for $8.50/ hour. Over the past 18 months she has had a credit card with a $2,000 limit and rarely carries a credit card balance in excess of $1,000.
Pattie is a medical doctor in the city and makes an average income of over $250,000/year. She’s had excellent credit for years but recently closed all her debts and put everything into a single, brand new loan.
4. If everything else was equal – who would have better credit?
Ashton has had a mortgage for over 20 years and the current balance stands at $50,000. He’s never missed any monthly payments and has no other debts or credit cards. He also uses his debit card frequently.
Richard has only 1 credit card and it has a $2,000 balance. He forgot to make a payment 8 months ago, and also missed a payment 3 years ago.
5. If everything else was equal – who would have better credit?
Flavio declared bankruptcy 6 years ago and was discharged for bankruptcy 5 years ago. He has a credit card with a $10,000 limit and an average balance of $4,000. 3 years ago he was in Italy on holiday and missed 2 monthly payments. He quickly made up for the mistake when he returned and has never missed a payment since then.
Pointdexter travels for work and is out of the country on business very often. As a result, he has missed many payments over the last 4 years. His latest missed payment was 3 months ago. He has a credit card limit of $10,000 with an average balance of $9,000.
Answers
1. Answer: Jim
Reason: Credit card companies feed their information to the credit bureaus once a month (as do all credit issuers). As a result, the credit companies can’t determine if the credit card balances are paid off in full or just partially. Cindy has a higher balance on her credit card (90%) than Jim based on percentage terms when compared to the credit card limit.
Jim’s credit card balance is only 70% of the limit. As a basic rule, you should always keep your credit card balance at less than 75% of its limit for it not to adversely affect your credit profile.
2. Answer: Svetlana
Reason: Your net worth is not provided to credit bureaus. If you don’t have any debts or use any credit, such as Frankie, you won’t have any credit history, so when a financial institution runs a credit check – it would come up empty! So it would be hard to get a mortgage at all. However, in Svetlana’s case, she should have a fairly easy time trying to get a mortgage as she’s built up a credit history.
3. Answer: Lisa
Reason: Your annual income isn’t reported to the credit bureaus, so the salaries included in the example were used to throw you off! Pattie closed all her credit card and other loans which effectively reduced here credit history in a very short period.
Tip: You should never close all your credit facilities in one go as Pattie did. If you wish to close a credit card, make sure you have a new active credit card that has been used for 12 – 18 months. In addition, with Pattie’s loan being so new, it would be right near her limit and would hurt her credit score.
4. Answer: Richard
Reason: Mortgages in Canada are not reported to the credit bureaus and we can’t seem to find any reason why this is the case, as they’re reported in the USA.
Ashton would be almost invisible to the credit bureau and they would assume he had bad credit – no credit = bad credit. He would find it difficult to find a mortgage versus Richard, who would have no problem.
Tip: In a marriage or common law relationship, it’s important for each person to have their own credit history as their mortgage will not be reported to either one’s credit bureau.
4. Answer: Flavio
Reason: It’s a trick question. Flavio, without a doubt, would have the better credit rating. However, banks will forgive a bankruptcy but never a missed payment after a bankruptcy, and this is what Flavio has. As a result, Flavio would find it difficult to qualify for a mortgage despite her very high credit rating.
Pointdexter would not find it difficult to get a mortgage.
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