Impact Credit Score

Learn the implications of not paying your statement on time

A credit score is a number that lenders use to judge your ability to pay back loans and other credit, largely influenced by your ability to pay your credit card bills on time. Banks and issuers consider payment history a significant indicator of risk when deciding whether to approve you for credit on an existing account or to decide what interest rate to charge on a new or existing loan. An on-time payment history indicates that you are a responsible and reliable borrower, whereas a poor history of missed payments suggests that you are more likely to skip paying future debts, and could have costly results for the lender.

Some things to consider before paying late or missing a payment:

  • You will be charged finance charges – If you pay your credit card bill even a single day after it’s due, you will be charged a finance charge that will be reflected on your next billing statement. If you continue to miss this due date, you will incur even more finance charges.
  • Your interest rates can rise – If you pay your creditors late, this may result in an increase in your interest rate. Being unreliable with payments raises a red flag to financial institutions, and multiple consequences may occur if you pay late. For credit cards, the penalty APR can be as high as 29.99%, which means your minimum payment may go up, and interest costs will add up at a quicker rate.
  • It will be reflected on your credit report – If your payment is more than 30 days late, the credit bureaus may be notified and the late payment will show up on your credit report. A late payment on your credit card report can stay on your credit report for up to seven years and cause even more damage than a late payment.
  • It can lower your credit score – Payment history comprises up to 35 per cent of your credit score, making it a huge factor in calculating your score. Just one late payment can hurt your credit score significantly. Depending on how late and infrequent your payment is, your credit score will be damaged accordingly.

Factors that determine a credit score

A credit rating or score is determined by multiple data in the credit report and translated into a three-digit number that lenders use to make decisions. To determine a credit score, analysts traditionally use information in credit reports, account histories or applications. Since there are so many different companies, there is also a variety of different scores a company can use to judge your credit worthiness. In Canada, credit scores range from 300 up to 900 points; a higher score being better than a lower score..

According to credit bureau TransUnion, 650 is the middle ground number, meaning a score of 650 or higher will help you qualify for a standard loan, while a score lower than 650 will make it more difficult for you to receive new credit.

The following five factors are the main components of your credit score:

  • 35% – Payment History – Shows how responsible you have been in paying your statements on time
  • 30% – Credit Utilization Ratio – The amount of credit you’ve been using compared to the amount of credit that you actually have
  • 15% – Length of History – The amount of time since you started using credit
  • 10% – New Credit – How many times you’ve applied for new credit in the past 6 months to a year
  • 10% – Type of Credit Being Used – What kinds of debts you hold and whether you have diverse debt holdings

Your credit score is a number that allows lenders to judge you ability to pay back loans, such as car loans or mortgage loans. Lenders may also use this score to determine if they should raise the credit limit on an existing account, or what interest rate to charge on a recent or existing loan. Paying bills is on time is the key factor to getting a good credit score.

How to Check your Credit Score

You can get a free copy of your credit file using one of two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. Instructions on how to order a credit report by mail are available online. Essentially, you need to send in photocopies of two pieces of identification, in addition to some basic background information. You will receive your report in two to three weeks time from submission. If you do not have the time to wait for a free report by mail, you can also request a credit report online with additional charges. For TransUnion, the instructions for a free credit report are available here. Equifax instructions are here.

How to improve your credit score

Once you’ve checked your credit score and have carefully examined the five factors, you will notice that payment history and credit utilization are the biggest percentages in the credit score formula. This means that paying off your debt consistently and keeping it minimized will improve your chances of acquiring a higher credit score.

The following tips from the Financial Consumer Agency of Canada (FCAC) will help you improve your credit score:

  • Pay your bills on time – The payment of your utility bills, such as phone, cable and electricity is not reported in your credit report, but these companies may report late payments to credit-reporting agencies, which could affect your credit score.
  • Always try to pay your debt by the due date – If you aren’t able to pay your dues in one lump sum, pay at least the minimum amount shown on your monthly credit card statement.
  • Do not go over the credit limit on your credit card – Try to keep you balance as far below the limit as you can. The higher the balance, the more impact it will have on your credit score.
  • Do not apply for more credit cards – If too many potential lenders ask for your credit in a short time period, it may negatively impact your credit score.
  • Build your credit history – If you have a low score, its likely you have made a habit of owing money and not paying it back. You can build your credit history by paying off your credit due.

How will credit counselling impact my credit score?

Everyone’s credit report is different. It relies on the impact of your reliance on credit prior to joining a program. If you have a history of being late with payments, your credit report may already show signs of delinquency, and making payments through a credit counselling agency may have little impact at the start. When joining a program, it may appear that you are paying bills through a credit counselling program. This is not necessarily to your disadvantage; you will be avoiding the notations on your credit report associated with other options such as bankruptcy and consumer proposal, and it is certainly better than doing nothing at all. As time passes, regular on time payments and reducing your debt will help in improving your credit profile.

If you are concerned about how your credit score will impact your future finances, give Consolidated Credit a call today at and a trained credit counsellor can evaluate your situation to help you better understand your credit and finances. You can also take the first step online with a Free Debt Analysis.