Five credit myths that could be holding you back

Healthy credit is a key indicator of your overall financial well-being. Credit health is typically determined by your credit score—which provides a snapshot of your credit risk, or the likelihood you’ll pay your bills on time. Lenders may look at your credit score to determine potential risks associated with granting you credit.  

Despite the importance of understanding credit, nearly half of Canadians have never requested their credit report and don’t know their credit score. Not understanding the ins and outs of credit may be holding you back financially—when it comes to credit, what you don’t know can hurt you.  

We’ve debunked five credit myths to help improve your financial health: 

1. Using a credit card and paying it off right away will improve your credit score.

False – The date on your credit card statement is the date your financial institution reports your activity to the credit bureaus. If the balance on your credit card is $0 on the statement date, it’s like you didn’t use the card. In this case, credit bureaus wouldn't recognize any positive or negative activity, and your credit score could remain unchanged. 

If you’re trying to improve your credit score, you could try paying the statement balance in full before the statement date. This date should be clearly labeled on your credit card statement and electronic banking app. If you need help remembering dates, many lenders offer automatic payment options that transfer funds from one account to your credit card before the balance is due.

2. Paying off a loan in full will increase your credit score.

False – Many assume that paying off a loan in full will increase their credit score— this is not the case. Only active accounts can positively impact your credit score. 

Maintaining an active loan may help increase your credit score because you’re proving that you can make consistent payments. However, once the final payment is made, the account closes and is no longer active. No longer making payments towards the loan means that there is no more positive activity boosting your score. Although repaying a loan in full may slightly reduce your credit score, that’s not a reason to avoid repaying your debts. There are several benefits to closing a loan in full such as bringing an end to monthly payments and avoiding interest charges.  

3. Checking your own credit report hurts your score.

False – There are two types of credit inquiries. When a lender checks your credit during the application process, it’s recorded on your credit report as a hard inquiry and may negatively impact your credit score depending on your current standing. When checking your own credit, known as a soft inquiry, there’s no impact on your credit score.  

Routinely checking your credit is a healthy credit habit. It’s free to check through Canada’s two credit bureaus, Equifax and TransUnion, many third-party companies, or even through your bank. If you check your credit score online or using a third-party company, always be cautious when sharing your personal information. If they ask you to pay, it is most likely for a credit monitoring service, which isn’t required to access your credit score.   

4. After completing a consumer proposal or bankruptcy, you must wait years before you can start rebuilding your credit.

False – You can start rebuilding your credit immediately by maintaining active credit accounts, such as a car loan. Making on-time payments towards your active credit accounts helps prove that you can make consistent payments and can increase your score over time. 

Additionally, you can also apply for a secured credit card. This type of credit requires you to pay a cash deposit upfront as collateral on the account. Maintaining active credit or applying for new credit both offer simple opportunities to manage monthly payments and improve your creditworthiness over time.  

5. When you complete a consumer proposal or bankruptcy, the debts on your credit report should be $0.00.

False – Creditors may disclose past balances owed to them on your credit report for a certain amount of time. Although visible, these accounts will be marked as ‘closed’ and will not impact your credit score. Closed accounts temporarily appear on your credit report to inform potential lenders of your history with credit. If you feel like there is an error on your credit report after completing your consumer proposal or bankruptcy, you must submit a request directly with the credit bureau to have the error reviewed.  

If you feel overwhelmed by your credit situation and want to make a change that counts, Grant Thornton is here to help. We offer judgment-free, 30-minute consultations to help you find the best path to debt freedom. Book online or call us today at 1-844-4GT-DEBT, to start your path to a brighter financial future.

The information contained herein is prepared by Grant Thornton Limited for information only and is not intended to be either a complete description of any issue or the opinion of our firm. You should consult your Grant Thornton advisor to obtain additional details and to discuss whether the information provided here applies to your specific situation.