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Six Surprising Things Students Need to Know About Their Credit Score

By Helen Reaume

Published May 4, 2022 • 4 Min Read

Over the course of your life, you’ll be more likely to qualify for better interest rates, which can mean paying lower fees on mortgages and other loans.

A credit score — aka a credit rating — is a tool used by banks or other companies to give them a picture of how well you manage your money. Your credit score is based on information pulled from the lenders you do business with.

Contrary to popular belief, understanding your credit score doesn’t require you to be a mathematician. It does, however, require you to understand a few things about credit and how it’s calculated.

Here are 6 things you may not know about credit scores:

1. You have more than one credit score

When you hear people talk about “your credit score” they usually speak as though you only have one. But that’s wrong. Everyone actually has multiple credit scores. Canada has two credit bureaus, TransUnion and Equifax, each of which uses slightly different methods to calculate a credit score based on your credit history. There are also other companies that calculate credit scores which banks or other lenders might use when assessing whether to lend to you.

2. The golden 20-30 rule

A large part of your credit score is calculated based on how much of your credit you’re currently using. This is called your credit utilization ratio and if you want a high credit score, you typically should utilize just 20%-30% of your available credit. If you use more on any particular card or in total, then your credit score could be dinged. What if you pay your cards off every month? It doesn’t matter — if you’re charging more than 20%-30% of your limit then your credit utilization ratio isn’t ideal.

3. Pay more than your minimum payment

While it’s always important to pay at least your minimum payments, if that’s all you do it could take you a long time to repay your credit card debt. That’s why, if you can’t repay your balance entirely, you should at least pay more than your minimum payment. Even just $10 more per month would help you chip away at that debt and ensure that you’ll be able to celebrate paying off your debt that much sooner. An added bonus is that you’ll pay less interest each month as well since your balance will be lower.

4. It’s easier than you think to get your credit report and score

Did you know that you’re entitled to a free copy of your credit report once a year? It’s easy to get it. All you have to do is provide copies of your identification and a form with personal information to one of Canada’s two credit bureaus: Equifax or TransUnion. You’ll then get your credit report online or in the mail in 5-10 days. Your credit report outlines your credit history and all the components that contribute to your credit score. RBC clients can also check their credit scores for free through RBC Online Banking.

5. Applying for all those credit cards may hurt your score

You might want to get the free t-shirt or bonus travel rewards that come with applying for new credit cards, but if you apply for too many new cards it may have a negative impact on your score. That’s because your credit score takes into account how many times you’re applying for credit and adjusts for it. If you decide to apply for a credit card, make sure that it’s something you will get value from beyond the free t-shirts. Here’s a nifty tool to help you select what type of card features best fit your needs.

6. It’s Not All About Credit Cards

From the tips above, you might think that only credit cards determine your credit score. They do have a big impact, but they aren’t the only factor in building a good credit score. Having multiple types of credit like student loans, a car loan, or a mortgage gives you great credit diversity, which can increase your score. However, with any credit product, take the time to think about if it makes sense for you, and don’t be afraid to ask for advice from family or financial advisors.

For more student credit tips, check out this Building Good Credit infographic.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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