TORONTO -- A payment deferral may not crater your credit score.
An important part of a financial plan is understanding your credit report and score. A strong credit foundation reflects to lenders not only your ability to meet debt obligations but also your willingness to pay them.
In an ironic sort of way it took a pandemic for Canadians to take their credit report more seriously.
According to a new report out by Equifax Canada, it found COVID-19 has resulted in people taking a closer look at their financial situation, resulting in an increased understanding about their relationship with credit. In fact, in the last 12 months, 71% of survey respondents have checked their credit report, including 57% in the last month. And if you are wondering if this is a big deal it is. According to data collected by Equifax in 2016, 67% of survey respondents "rarely or never" checked their credit reports. We have come a long way.
Here is what can impact your credit score:
- Your payment history - missing even one payment can have an impact.
- How much credit you have available to you
- Your credit history and how long have you had your credit -- the longer the better
- Your credit mix, and if you have a diversified portfolio of credit such as car loan, credit card, mortgage or other credit products
- How often are you applying for new credit, which can work against you.
Given how COVID-19 has impacted the bottom line of Canadians it is important to note Equifax found more than 3 million consumers have taken a deferral since the pandemic started. Fourteen per cent of open mortgages have had at least one month payment deferral (approximately 900,000 deferred mortgages) and 2% of open credit cards have had at least one month of payment deferral (approximately 1.2 million deferred credit cards). And half of the deferral mortgages have had continued deferred payments for the past four months. While credit cards have had a shorter deferral duration of one or two months.
It is not surprising to me that people want to know how their deferrals have impacted their potential ability to borrow in the future.
It is important to note however, once you officially contact your lender and get them on side for a deferral, a skipped payment will not affect your credit score.
That doesn't mean you want to become complacent so here are a few tips to ensure your credit remains in good standing.
- Check your credit score on an annual basis; errors happen all the time and someone else's mistake or poor financial management could reflect poorly on your situation
- Pay your bills on time and if you run into difficulty reach out to your lender as quickly as possible.
- Don't go over your credit limit
- Restrict the number of credit applications you make
COVID-19 has wreaked havoc on the finances of many households however, those who have reached out for help and been honest and transparent, stand a really good chance of keeping their credit rating in check for when we come out the other side of this pandemic.
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