Identifying What's Hurting My Credit Score in Canada

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Identifying What's Hurting Your Credit

Before taking steps to improve your credit score, it is crucial to conduct a precise diagnosis of the factors dragging it down. Each negative element on your file does not carry the same weight or have the same duration of impact. Understanding the hierarchy of these factors will allow you to focus your efforts on the elements that will have the greatest positive effect and optimize your preparation before a mortgage application with a lender in Canada.

Payment History: The Dominant Factor

Your payment history represents approximately 35% of your Beacon credit score at Equifax. It is the most heavily weighted factor in your score calculation. A 30-day late payment on a single account can cause a drop of 60 to 100 points, depending on your overall profile. The longer the delinquency (60, 90, 120 days and beyond), the more severe the impact. Additionally, recent late payments weigh more heavily than older ones. A-lenders in Canada generally require no late payments in the last 12 to 24 months for best-rate approvals.

Credit Utilization: The Invisible Trap

Credit utilization, the ratio of your balances to your credit limits, accounts for approximately 30% of your score. Even if you religiously pay the full balance each month, the timing of your statement can work against you. Creditors typically report your balance on the statement date, not after receiving your payment. If your limit is $10,000 and your balance at statement date is $5,000, your utilization shows as 50%, which is considered high by mortgage lenders.

Utilization of 0% to 10%: excellent signal for lenders. Shows you have access to credit but do not depend on it.
Utilization of 10% to 30%: healthy zone. Most credit experts recommend staying below this threshold.
Utilization of 30% to 50%: warning zone. Begins to negatively affect your score.
Utilization of 50% to 75%: significant negative impact. A-lenders may hesitate.
Utilization above 75%: major red flag. Significant score drop and perception of credit dependency.

Collection Accounts and Public Records

Accounts transferred to collection agencies are among the most severe marks on your credit file. In Quebec, a collection remains on file for six years from the date of the last default. Even an amount as modest as $50 from a forgotten phone bill or utility account can result in a mortgage denial or require additional conditions from the lender. Court judgments, seizures, and bankruptcies are recorded in the public records section of your report and constitute the most damaging entries for your borrower profile.

Other Often-Overlooked Negative Factors

Certain lesser-known factors can also hurt your score. Closing an old credit account shortens the average length of your credit history (approximately 15% of your score) and reduces your total available credit. Having only one type of credit (for example, only credit cards) penalizes the diversity of your profile (approximately 10% of your score). Multiple credit applications, if not grouped within the 14-day mortgage shopping window, add up and reduce your score by 5 to 10 points each. Finally, a complete absence of credit is also an obstacle, as mortgage lenders have no basis to evaluate your repayment behaviour.

Frequently Asked Questions

What factor hurts my credit score the most?

Payment history is the most influential factor, accounting for approximately 35% of your score. A single late payment of 30 days or more can cause a significant drop of 60 to 100 points. Recent late payments have a greater impact than older ones. Mortgage lenders in Canada pay particular attention to the absence of late payments in the last 12 to 24 months.

Can a $50 collection account really hurt my mortgage application?

Yes, absolutely. In the eyes of mortgage lenders and insurers like CMHC, a collection account is a red flag regardless of the amount. A $50 collection from a forgotten phone bill can result in a denial or require additional conditions. It is best to settle these accounts and obtain a clearance letter before submitting your application.

Does maxing out my cards hurt my score even if I pay on time?

Yes. Credit utilization accounts for approximately 30% of your score. Even if you pay the full balance each month, if your balance is high when the creditor reports to the bureau (typically the statement date), your utilization will appear high. Ideally, keep your utilization below 30% of your limits.

Can closing an old credit card lower my score?

Yes, for two reasons. First, you reduce your total available credit, which increases your overall utilization ratio. Second, you potentially shorten the average length of your credit history, which accounts for approximately 15% of your score. It is generally better to keep old accounts open, even if you rarely use them.

Do multiple credit inquiries hurt a lot?

Each hard inquiry can reduce your score by 5 to 10 points. However, bureaus group mortgage inquiries made within a 14-day period as a single inquiry. The impact is more pronounced if you have a short credit history or if the inquiries are spread over several months.

How long does a judgment or seizure affect my file?

In Quebec, a judgment on public record remains on your credit file for six years from the date of the judgment. A seizure also remains for six years. These entries are among the most damaging to your score and constitute a major obstacle with A-lenders.