Credit Report and Score Basics: Part 4 of 4 – The case of Rita Arora

In an earlier post, we answered the question: What if you couldn’t get financing for a practice purchase?  This article told the story of a fictitious character, Rita Arora, a new dentist trying to purchase a practice. Initially, Rita was refused a bank loan for the purchase of the practice because of her poor credit score and other factors that made it too risky to loan her money. Rita managed to turn the situation around and purchase a practice three years later. She took the steps below (and you can too!) to re-build her credit history and improve her credit score.

  1. Review your credit report1 from the credit bureaus, Equifax Canada and TransUnion Canada, once a year. Ensure your credit history and personal information are correct and report any mistakes. Space out your requests for a credit report from each credit bureau at least six months apart. This will allow you to detect problems sooner.2
  2. Make full or minimum required payments on time. If you cannot, try negotiating an arrangement of debt repayment with the lender.3
  3. Do not apply for too many credit or loan products. Every time you apply, your credit history is checked and recorded as an inquiry4, which can affect your credit rating.
  4. However, ensure you have different types of credit, such as a loan, a line of credit, or even a second but different type of credit card. You may be at risk for a lower score if you only have one type of credit product.5
  5. Use less than 35% of your available credit. Your credit score is affected by how much of your available credit you actually use, not your credit limits. If you use a large percentage of your available credit, lenders will see you as a greater risk, even if you pay your balance in full when it’s due.6

1A credit report is a summary of your credit history, which is created when you use a credit card, take out a personal loan or take advantage of a “buy now” “pay later” offer. Understanding your credit report and score: What is a credit report? (Financial Consumer Agency of Canada)

2Understanding your credit report and score: Why might the credit score I receive be different from one a lender is using?  (Financial Consumer Agency of Canada)

3Understanding your credit report and score: How to correct errors and check for fraud (Financial Consumer Agency of Canada)

4Understanding your credit report and credit score: Number of inquiries (Financial Consumer Agency of Canada)

5Understanding your credit report and credit score: Tip to improve your credit score (Financial Consumer Agency of Canada)

6Understanding your credit report and credit score: Use of available credit (Financial Consumer Agency of Canada)