Financial Literacy Newsletter – November 2022

Make change that counts: Managing your money in a changing world

A few words from FCAC

Welcome to the Financial Literacy Month issue of FCAC’s Financial Literacy Newsletter! November 2022 marks the 12th anniversary of this important campaign that helps Canadians strengthen their financial literacy skills and build their financial resilience. 

The theme of this year’s campaign is Make change that counts: Managing your money in a changing world. It reflects a complex and changing economic landscape with an increased cost of living, rising interest rates and high levels of household debt in Canada. 

Financial Literacy Month (FLM) is an opportunity to advance the National Financial Literacy Strategy's vision of a more accessible, inclusive and effective financial ecosystem for all Canadians. All stakeholders in the financial ecosystem – government, the financial services industry, community groups and researchers – have a role to play in helping Canadians build financial resilience and achieve positive financial outcomes. By working together, we can make change that counts!

FCAC has chosen managing debt as the area of focus for this year’s campaign. In this issue of the newsletter, you will find information on how to manage your debt when interest rates rise, as well as tips and tools to help you put what you learn into action. You will also learn about your rights when borrowing money. Knowing about these consumer protections will help you borrow money more wisely. The newsletter also has useful information about organizations that can help you manage your finances and what you need to know when getting help to pay off debt and to improve your credit score.

FCAC is also excited to share the expertise of our government partners and Financial Literacy Month supporters. Prosper Canada shares its Benefits wayfinder tool to help you identify and access government benefits. The Canadian Foundation for Economic Education discusses the difference between good and bad debt, and the link between financial health and mental health. The Office of the Superintendent of Bankruptcy helps Canadians in financial distress find the right debt solution. FP Canada shares tips from professional planners on how to manage debt. Credit Canada explains the importance of knowing your credit score and how it is calculated. And finally, Bromwich+Smith looks at the pros and cons of Buy Now Pay Later financing.

We hope these articles will help you take steps to manage your debt so you can take control of your finances and build your financial resilience.

Are any of the articles in this newsletter relevant to you? Feel free to share them with your network. Follow us on social media, on Facebook, Twitter, and Instagram. We are also on YouTube and LinkedIn.

Happy reading!

5 tips to manage your money when interest rates rise

By: Financial Consumer Agency of Canada

1. Review your budget to identify where you can cut expenses

A budget planner can help you save money by tracking your spending so you can see where your money goes and identify those things you want but don’t really need. Use the money you save to pay down your debt.

Learn how to make a budget and cut down on expenses.

2. Make a plan to pay down your debt as much as possible

Decide on a strategy for paying off your debt based on the types of debt and the amount of debt you owe. Contact your creditors and financial institution to discuss ways to reduce your debt. Accredited agencies and organizations are also available to help you develop a debt management plan.

Use the credit card payment calculator to explore different ways to pay off your credit card faster.

3. Consider consolidating debts with high interest rates into a loan with a lower interest rate

Consolidating your debts into a lower interest loan means you’ll save money on interest. A consolidation loan won't hurt your credit rating if you make your payments on time.

4. Avoid taking on more debt in the future 

Saving for financial goals like education, vacations and retirement can help you to avoid taking on debt in the future. Building an emergency fund to pay for unexpected expenses, including higher loan payments, is another way to avoid future debt.

Use the financial goal calculator to plan a savings strategy for a future goal.

5. Find your financial balance

Managing personal finances involves finding the right balance between your different financial needs. When the cost-of-living increases and interest rates rise, you may need to adjust your budget to find the right balance between daily spending and debt repayments. Keep in mind that the right balance will depend on your financial situation and goals.

Quiz: How well do you know your rights when borrowing money?

By: Financial Consumer Agency of Canada

Knowing your rights when signing onto a mortgage, a car loan, a line of credit or a credit card will help to ensure you borrow money wisely.

Take the quiz below to see how well you know your rights when borrowing money. To see the correct answer, click on the drop-down arrow.

1. You have a right to information when you apply for a mortgage. The most important information in a mortgage application, mortgage agreement, or separate document must be provided:

1. in an information box
2. in a disclosure statement
3. in language that is clear, simple and not misleading
4. all of the above

2. Your mortgage lender must disclose information to you about the renewal of your mortgage:

1. at least 14 days before the end of your term
2. 21 days before the end of your term
3. six months before the end of your term
4. none of the above

3. If your federally regulated financial institution makes changes to the terms and conditions of your credit card they must:

1. provide you with the details of changes 10 days before the changes take effect
2. provide you with the details verbally
3. get your express consent before raising your credit limit
4. all of the above

4. Federally regulated financial institutions that offer loan insurance for mortgages, car loans, credit cards and lines of credit must:

1. obtain your express consent before providing this product to you
2. enter into a separate agreement with you before providing this product to you
3. give you written confirmation of your consent if you consent verbally
4. all of the above

5. A federally regulated financial institution that contacts you about a debt you owe is not allowed to:

1. make public, or threaten to make public, your failure to pay
2. contact you on holidays or Sunday except between 1 p.m. to 5 p.m.
3. try to contact anyone about information other than your telephone number or address, except in certain cases
4. all of the above

6. Since June 30, 2022, when dealing with your bank you now benefit from:

1. more online choices when applying for a loan, mortgage, or credit card
2. more options on how to pay the debt you owe
3. new and enhanced protections that will protect you in your dealings with your bank
4. none of the above

What you need to know when getting help to pay off debt

By: Financial Consumer Agency of Canada

If you can no longer keep up with your debt payments, you may want to think about getting professional help to pay them off. Here is a guide to help you think through what kind of professional help is best for you and what to watch out for when getting help to pay off debt.

Know where to get help

Credit counselling

Both not-for-profit organizations and for-profit companies offer credit counselling services. A credit counselling agency can provide a range of services including courses and seminars, one-on-one counselling and debt management plans.

Simply talking to a credit counsellor won't affect your credit score.

Debt settlement

A debt settlement company negotiates with your creditors and will offer them a lump sum of money to eliminate your debt. This amount of money is often lower than your total debt. If your creditors agree to the offer, you must provide the lump sum to your debt settlement company. The debt settlement company will then pay your creditors.

Some credit counselling agencies may also offer this service.

Licensed Insolvency Trustee

Licensed Insolvency Trustees are licensed by the federal government’s Office of the Superintendent of Bankruptcy to handle debt problems using consumer proposals and bankruptcies. Both are legal processes that you follow to pay off your debt. When you meet with trustees, they will first assess your financial situation. They will typically provide this financial assessment for free. For individuals who are in significant financial difficulty, a consumer proposal or bankruptcy may be the best solution.

Compare your options

Debt management plan

A debt management plan is an informal proposal that your credit counsellor makes to your creditors on your behalf. It allows you to consolidate your debts into one affordable monthly payment. In some cases, you may not have to continue to pay interest on your debt. You'll usually have to repay 100% of your debts. A debt management plan is a voluntary agreement between you and your creditors. Creditors who choose not to work with you on a debt management plan may continue to contact you. They may also garnish your wages or take money from your bank account if you have a bank account with them and you owe them money.

There will be a negative impact on your credit score for 2 years after you complete the debt management plan.

Consumer proposal

A consumer proposal is a legal process where you work with a Licensed Insolvency Trustee. They will negotiate a debt payment plan with your creditors. You’ll most likely end up paying a percentage of what you owe with no interest. This amount is based on your ability to make payments. The trustee calculates the amount by considering your assets, your income and some of your expenses.

There will be a negative impact on your credit score for 3 years after you complete the consumer proposal.

Bankruptcy

Bankruptcy is a federally regulated process available when you can't afford to repay even a portion of your debt. You'll work with a Licensed Insolvency Trustee who will handle your legal paperwork and arrange payment with your creditors. Some of your assets can be taken and other assets are protected. If you have assets that are taken, the trustee will put them towards your debt.

There will be a negative impact on your credit score for 6 or 7 years for a first bankruptcy (depending on your province). There will be a negative impact on your credit score for 14 years for a second bankruptcy.

What you need to remember when getting help to pay off debt or repair your credit

Both not-for-profit organizations and for-profit companies offer credit counselling services.

Do your research to find a trustworthy organization and a qualified counsellor. Make sure you know what services they offer and how much it will cost.

The Financial Consumer Agency of Canada (FCAC) is warning consumers to be cautious when looking for an organization or company to help them pay off their debt or repair their credit. If you can no longer keep up with your debt payments and are thinking about getting help to pay them off, remember:

• Companies or organizations can’t guarantee they will solve your debt problems
• Companies or organizations can’t quickly and easily fix your credit score
• Companies or organizations should not encourage you to take out a high-interest loan to pay off your debts
• Companies or agencies may misrepresent services they offer as being part of a government program

Steps you can take to find a trustworthy company or agency

• Research their reputation. Make sure a credit counselling agency is in good standing with a provincial or national association. Make sure a Licensed Insolvency Trustee is licensed by the Office of the Superintendent of Bankruptcy.
• Look carefully at their advertising. Be cautious. If it sounds too good to be true, it probably is.
• Find out about their services and costs. For example, the services offered and the fees charged by credit counselling agencies can vary greatly.
• Ask about the qualifications of the person helping you, including education, specialized training and years of experience.

What’s new

In the news

Credit card surcharge

Since October 6, 2022, merchants have had the option of adding a surcharge of up to 2.4% to purchases made by credit card (excluding Quebec). This rule change is the result of a class-action settlement between Visa, Mastercard and merchants, and is intended to help merchants to recover processing costs associated with card payments.

Merchants must clearly disclose the surcharge to cardholders at the point of payment before a transaction is completed. This will allow consumers to cancel the transaction before paying. Consumers can consider another method of payment to avoid these fees.

For more details, Canada.ca has information for consumers and for merchants.

Canada Revenue Agency (CRA) asks Canadians to claim uncashed benefits

The CRA has approximately $1.4 billion in cheques that have gone uncashed over the years. Canadians can check to see if they have uncashed cheques with the CRA through My Account.

Study shows that rent reporting through FrontLobby can help with credit payment history

Equifax (credit reporting bureau) and FrontLobby (organization helping tenants establish or rebuild credit) published their first multi-year Rental Tradeline Study. The study shows that 48% of renters who reported through the FrontLobby platform have credit histories based solely on their rental data reported into Equifax. FrontLobby helps renters who are “credit invisible” to improve their credit scores.

Cryptocurrency scams on the rise in Canada

The Canadian Anti-Fraud Centre (CAFC) is observing an alarming increase in scams where cryptocurrency is requested. The amount of cryptocurrency lost so far in 2022 (nearly $80M) has already surpassed the total amount lost in 2021 ($77M). Anyone who suspects they have been a victim of cybercrime or fraud should report to their local police and to the CAFC’s online reporting system or by phone at 1 888 495 8501.

Payments Canada study reveals Canadians struggle to understand their paycheque

A new Payments Canada study shows that over a third of Canadians find reviewing their paycheque daunting and that they are unlikely to spot an employer’s pay discrepancy. When asked about how they would change the pay process the number one response was for employers to do a better job of proactively helping them understand their pay statements.

Campaigns and events

Financial Literacy Month events

Throughout November, FCAC and FLM partners across the country are holding events to help Canadians strengthen their financial literacy and build their financial resilience. These events are promoted within the Canadian Financial Literacy Database’s calendar of events.

Financial Literacy Month Twitter High-5 for 5 Initiative

FLM is the perfect time to let Canadians know that there is a vast financial literacy community ready to help. To do this, FCAC is leading an initiative called “High-5 for 5.” This November, follow the conversation on social media, share financial literacy tips and take the opportunity to give "high fives" (tag them on Twitter) to people/organizations you know do great work in financial literacy. Don't forget to use the #FLM2022 hashtag.

Research

Employment and Social Development Canada (ESDC) seeks participants for two research studies

The ESDC research study on reverse mortgages aims to better understand motivations for getting reverse mortgages and their impacts on retirement security. The research study on home equity and retirement aims to explore the impacts of housing-backed debt (like mortgages and home equity lines of credit) on retirement planning among people in Canada aged 45 and older. Participation in the research studies will help inform programs and policies aimed at promoting and strengthening income security of Canadians.

Funding

Receive up to $2,000 in support for your education after high school

Eligible students between the ages of 18 and 21, and born in 2004 or later, could get up to $2,000 with the Canada Learning Bond (CLB). The money can be used for education-related expenses like tuition, books and transportation. The process is simple: open a Registered Education Savings Plan (RESP) and request the CLB. Any eligible CLB funds will be deposited directly into the RESP and can be used right away. More information can be found at Canada Learning Bond for 18 to 20 year olds.

Do you qualify for the Government of Canada’s contribution to RESPs for low-income families?

The Government of Canada has updated the income eligibility amounts that will be used to determine eligibility for the Canada Learning Bond for the July 1, 2022 to June 30, 2023 benefit year. The Canada Learning Bond (CLB) is money that the Government adds to a Registered Education Savings Plan for children from low-income families. This money helps to pay the costs of a child’s full- or part-time studies after high school.

Government of Canada announces improved financial supports for students with disabilities

The Canada Student Financial Assistance Program’s (CSFA) post-secondary financial supports became more accessible as of August 1, 2022. The Government has extended disability supports to include those with a persistent or prolonged disability and increased flexibility around the documentation that will be accepted when applying.

Learning tools

RentSmart program teaches budgeting to tenants

The Rent Smart Education and Support Society offers the RentSmart Certificate program — a free, virtual certificate program teaching tenancy rights and responsibilities, including budgeting and money management. The Society’s website offers resources for tenants in Alberta, British Columbia, Manitoba and Ontario.

New website helps Canadians prepare for retirement

The Financial and Consumer Services Commission of New Brunswick (FCNB) has launched a new Finances 50+ website dedicated to helping older adults prepare for and protect their retirement. The website includes tools to help financial professionals and those working with and caring for older adults.

New “Learn about your taxes” content

The Canada Revenue Agency’s (CRA) online learning tool, "Learn about your taxes," has been updated with new content! You can now learn about the history of taxes, how to access your benefits and credits, and ways to protect yourself from scams and fraud. Previously released content introduces Canada’s tax system and what you’ll need to know when doing your taxes. The CRA welcomes any feedback on “Learn about your taxes.” Please share your suggestions with LAYTG@cra-arc.gc.ca.

New financial literacy courses for teens

The Financial Consumer Agency of Canada (FCAC) is offering two free gamified financial literacy courses for students in grades 6-12 to help boost financial knowledge and confidence. The courses will be available until winter 2023.

New financial literacy online platform for university students

PennyDrops (a university student-led organization) recently launched PennyDrops Anywhere — an online platform where students can learn to be financially literate, from anywhere, and at any time, with the support of its mentors. Students will learn key financial skills and concepts by working through interactive activities at their own pace.

New education platform by Code F

The Code F Academy (French only) is a platform dedicated to financial learning and education developed by Code F. This platform aims to help individuals understand and take control of their personal finances by offering learning paths and synchronous classes exploring various aspects of financial health. Developed in partnership with the Caisse d'économie solidaire Desjardins, the City of Québec and a host of experts in the world of personal finance, this platform is Code F's latest initiative in its mission to educate, support and financially equip citizens.

Free digital literacy program for all ages

Telus Wise is a free digital literacy education program that offers workshops and resources to help Canadians of all ages (kids, youth, parents, teachers and seniors) stay safe in a digital world.

Get smarter about crypto with new online learning tool

The Ontario Securities Commission’s financial literacy website, Get Smarter About Money, has added a learning module about cryptoassets for beginners.

Words from our collaborators

Benefits wayfinder and disability navigator: Helping Canadians access additional sources of government income

By: Prosper Canada

With the soaring cost of living, many Canadians are faced with increasing dilemmas on how to get by, such as choosing between paying rent or buying groceries. According to Statistics Canada, in August 2022 the Consumer Price Index rose by 7.0% on a year-over-year basis, with food prices purchased from stores rising by 10.8%.

The Canadian government has made provisions to help struggling families, by making available several benefit programs, which help put money back into the wallets of hard-working and middle-class Canadians. However, accessing government benefits is often very complex with many steps that pose challenges for people with low incomes. Some people may also experience language, literacy, digital, mobility, cognitive, disability and/or mental health barriers which add to these challenges and cause people to abandon applying. Adding to the complication, benefits are administered through different government agencies, such as housing, social services and CRA, which can make the process appear overwhelming.

The process to apply for disability benefits is particularly complex, with many steps requiring medical professionals to complete sections within an application. For a person with lived experience of disability, this can be a retraumatizing and demoralizing process.

To help people find these benefits, national charity Prosper Canada has developed a bilingual online tool called the Benefits wayfinder that contains over 350 Canadian benefits in easy to use, plain language and presents customized benefit recommendations drawing from the unique life circumstance of each user that visits the platform.

Sponsored by TD, the tool was designed to be easily used by individuals or by frontline social service personnel to support their clients to identify benefits that can enhance their income and improve their quality of life, especially in these times of financial crisis.

The Benefits wayfinder also includes a disability navigator to provide a detailed step-by-step application process for the key disability benefits in Canada (including each province’s and territory’s disability income assistance program, the Canada Pension Plan-Disability, the Disability Tax Credit certificate and the Registered Disability Savings Plan).

For people who are experiencing a big life transition, such as moving to Canada, retiring, having a child, going through illness or disability, or just having trouble making ends meet, the Benefits wayfinder and the Disability benefits wayfinder can assist in identifying the supports that will put more money in the pockets of Canadians. Simply go to benefitswayfinder.org.

For more information on how to use the Benefits wayfinder, check out this 6-minute tutorial video. For other inquiries, or if your organization would like to book a Benefits wayfinder training session for your staff, please email benefitswayfinder@prospercanada.org.

Manage your debt before it manages you!

By: Canadian Foundation for Economic Education

Research is showing a strong correlation between financial health and mental health. Prolonged periods of financial stress and anxiety impact negatively on mental health, whereas staying in control of one’s finances helps to support good mental health. People across the globe find themselves in financial debt due to various life-altering circumstances.

What is debt?

Debt is any money owed, and it can be either good debt or bad debt. Good debt is money owed for things that improve your life by building your wealth or helping you increase your income. An example of good debt is student loans. Bad debt is money owed that leads to reduced wealth and quality of life over time. An example of bad debt is credit card debt. Debt will be good and bad depending on your circumstances. Any debt that you cannot pay off on time and in full is bad debt. Building financial literacy at a young age and maintaining financial capability throughout your life is crucial in being able to manage your debt.

How does CFEE play a part in the solution?

The Canadian Foundation for Economic Education (CFEE) is a non-profit, non-partisan organization, founded in 1974, that empowers Canadians and newcomers with the knowledge and skills needed to improve their economic, financial and enterprising capabilities to undertake their economic roles, responsibilities, and decisions with confidence and competence.

CFEE offers a range of programs, resources, workshops, and challenges to equip youth, teachers, parents, seniors, and newcomers with the financial knowledge that will contribute to the ability to manage debt. All their programs, resources and workshops are made available to everyone for free thanks to the generous sponsors and funding partners.

How can the resources be used?

Interested individuals can check out the CFEE Events section to register for workshops and webinars. Teachers can incorporate curriculum like “Building Futures” and “Money and Monetary Policy in Canada” that is designed for youth and is supplemented with a Teacher Guide to facilitate learning. Parents can talk to their children about financial topics and build habits around finance at home with our “Talk with Our Kids about Money” resources. Youth can explore self-instruction-based programs like “FinLit 101.” Seniors and older adults can benefit from “Money and You: Seniors Edition” and “Let's Talk Money: Seniors.” These programs will enable open, honest conversations about money that are key to building a healthy relationship with your family, across the generations.

Head to the website and explore all the programs. These can be filtered based on specified categories and groups like youth, newcomers, parents, educators and seniors!

Helping Canadians find the right debt solution

By: Office of the Superintendent of Bankruptcy

The Office of the Superintendent of Bankruptcy (OSB) is committed to providing Canadians with relevant, accurate and timely information about the insolvency system — a regulated, legal process that allows individuals and businesses to deal with significant debts and their creditors.

At the OSB, we are passionate about helping Canadians in financial distress find the right debt solution for their needs. That’s why this year’s Financial Literacy Month theme of “Managing your money in a changing world” is close to our hearts.

With inflation and rising interest rates, managing your money can be an especially difficult challenge. Balancing our budgets in the face of the increased cost of living, while avoiding getting into serious debt, may sometimes seem impossible.

It’s ok if you’re carrying debt — most of us are. What matters is how you’re dealing with it. You could start by creating a budget if you don’t have one already. When you track your expenses, you might be surprised to see that there may be areas where you’re spending more than you thought. Small adjustments can make a real difference. Having a plan in place is the first step in taking control of your finances.

If you need help to deal with your debt, you have options available, but there are some things to consider. Ask questions and consult more than one licensed professional to avoid paying unnecessary fees. Many will offer an initial, free consultation. Watch out for up-front fees, high-pressure sales tactics or unrealistic promises to quickly solve your debt problems or fix your credit score. Remember, if it sounds too good to be true, it probably is.

The OSB has created an online debt solutions portal to provide you with a reliable place to start. Complete our short debt questionnaire to find out if your debt is likely something you can manage on your own or if you may need the help of a professional. You’ll also find helpful information and options on how to deal with your debt, videos on debt and insolvency topics, as well as links to useful tools and resources from the Financial Consumer Agency of Canada (FCAC) on how to manage your money.

You can also search for a local Licensed Insolvency Trustee, who can help you assess your financial situation, and will review all the options available to help you make a plan that’s best for you. It may be difficult to face debt problems, but the sooner you do, the better. The OSB and FCAC are here to help you find options you can trust.

Professional financial planners offer tips on debt management

By: FP Canada

We all have many competing financial priorities, and debt is one of them — from mortgages to student loans, car loans and credit cards. Paying down debt can be a challenge, especially at times when interest rates are rising, and so are day-to-day living costs.

With everything becoming more expensive, it can be tempting to pause all debt repayments to stay afloat. But that comes with major long-term risks.

When trying to figure out how to manage your debt, it’s important to consider all of your other expenses and priorities. That’s why it’s ideal to work with a financial planner, such as a CERTIFIED FINANCIAL PLANNER® professional or QUALIFIED ASSOCIATE FINANCIAL PLANNER™ professional, who can give you personalized advice based on all aspects of your finances.

Here are three tips from professional financial planners for managing debt during challenging times.

1. Start small to chip away at debt

Today, Canadians’ dollars are simply not going as far as they once did with the price of daily expenses and household essentials at historic highs.

Though finances and spending plans need to be revisited and monitored closely, financial planners say it’s critical to continue paying down debt.

“To improve your overall financial well-being today, start small,” says Shannon Lee Simmons, CFP® and Founder of the New School of Finance in Toronto, ON. “Canadians can pause investment contributions until debt becomes manageable, explore paying off debts by leveraging lines of credit and limit unconscious spending where possible.”

2. Keep an eye on spending

While pandemic-related lockdowns and job loss promoted saving strategies like single vehicle living and at-home eating, many of us recently once again started spending more on discretionary items.

That means it might be time to review your financial plan to ensure it reflects your current situation — or work with a financial planner to create a plan if you don’t have one already.

“Debt is here to stay, whether from credit cards or mortgages, meaning flexible repayment strategies are critical,” says Lee Simmons. “Remember that financial plans are not a one-and-done decision. In fact, your financial plan should evolve with the realities of your life and can always be revisited in the future.”

3. Get advice from a professional

While debt repayment may be pushed to the back burner when money is tight, a financial planner can help you build a plan for continuing to reduce debt, bit by bit.

“Chipping away at debt in small sums and cutting out unnecessary expenses can be hugely beneficial for your long-term goals in achieving financial freedom,” says Zena Amundsen, CFP and Owner of Astra Financial Services in Regina, SK. “Financial planners are your cheerleaders in helping analyze your financial state and accomplish your spending, saving and repayment goals in this unpredictable world.”

Learn more about financial planning at financialplanningforCanadians.ca. To find a professional financial planner who can help you manage your debt and get on track towards financial well-being, visit FP Canada’s Find a Planner tool.

Win the game by knowing your score

By: Credit Canada

Managing your debts can feel like a torturous game:  Trying to make tough choices under pressure, racing against time, and always worrying that no matter how hard you try, you are going to lose.  It is a game no one would choose to play for fun, but millions of Canadians have very little choice.

Games have rules and players keep score.  When it comes to your credit, the lenders make the rules and the credit bureaus — TransUnion and Equifax  — keep the score.  It is called your “credit score” and knowing how it is calculated is key to playing the game.  You wouldn’t expect to get better at cricket or Candy Crush or Bridge if you didn’t know how to score.

Why your credit score matters

The need to borrow money is a fact of modern life.  But the availability of credit, and the price you will pay to access it, are determined by your credit score.  The number ranges from 300 to 900, with the Canadian average sitting at about 750.  The higher your score, the higher the amount lenders will offer you, and the lower the interest rate you will pay, because lenders determine you to be a better risk. Increasingly, employers and landlords are looking at credit scores, meaning that your financial behaviour could affect your ability to get a job, or an apartment to rent.

What your credit score includes

Your credit score might seem like a mystery, calculated in secret and then used against you.  But, in fact, the variables and basic math are easy to find out.  Lenders regularly send information about your financial behaviour to the credit bureaus, creating a credit report that includes the loans and credit cards you have and whether or not you made your payments on time.  That report is the foundation for the actual credit score.

Your credit score gives weight to the following.  Note that percentages are approximate.

• Payment history — 35%:  Did you meet the terms of your loan agreement and pay the minimum on time, every single time?  If not, you’re deemed to be less reliable.
• Utilization — 30%:  How much of your available credit are you using up?  Being “maxed out” will hit your credit score.
• Credit history — 15%:  How long have you had that credit card for?  The longer the relationship, the better.
• Diversity of credit — 10%:  Do you have a few different options on your credit report?  
• Inquiries — 10%:  Have you been applying for credit frequently, in a short period of time?  If yes, this will hit your score because it might mean you’re in distress.

How do you find out your credit score

It is now easier than ever to find out for yourself what every lender already knows about you.  You can go to Equifax and TransUnion directly, for free, or access your credit score through one of the many financial institutions that provide it for free as well.  You’ll be able to see what has been happening that might be pulling your score down, such a missed payment.

How do you improve your credit score

Ask any Poker player, Scrabble wiz or Olympian how they got good at their game: They will say it was practice, practice, practice.  This is exactly how you improve your credit score too.  The starting point is to ensure that your income exceeds your expenses such that you have the money to pay.  Then, be sure to pay on time, every single time.  Work hard to keep balances below 30% of your available credit — so if you have a total credit limit of $5,000, don’t let your outstanding balance rise above $1,500.  Hold on to the credit card you’ve had the longest, see if you can get a low-rate, low-limit line of credit, and don’t apply for credit you don’t absolutely need.

Every one of us has been bad at a game the first few times we played.  But with time, effort and an understanding of the rules and how to keep score, we improved.  You can do the exact same thing with your credit score.    

Buy Now, Pay Later: What Canadians should know about this new form of payment

By: Bromwich+Smith

Canadians have experienced a vast array of financial ups and downs this year from large rate hikes to rising prices at the gas pumps and grocery stores. For the average Canadian, the rising cost of living is a lot to contend with. As we get ready for the upcoming holiday season, how can we plan for the extra costs that are bound to come up?

This year, online shoppers will likely notice a new offering on many of their favourite websites and at stores: Buy Now, Pay Later (BNPL) through installment payments. Klarna, a large BNPL service launched “Pay in 4” that allows you to split purchases into payments without interest. Companies such as Affirm and Afterpay have recently partnered with Amazon and Square to make further BNPL options available.

This new type of short-term financing, also referred to as "point of sale installment loans," is potentially becoming the latest consumer spending pitfall for shoppers. While it offers instant gratification and overall convenience for consumers, shoppers should be aware of the full costs before jumping into this trend.

How does BNPL work?

While there will be slight differences between offerings, there are some things they all have in common. You will click on the offer at check out and the approval will come in instantly. You will likely be asked for a small payment upon purchase and then the additional costs will need to be arranged by credit card or directly from your bank account. The interest rates and fees will vary depending on the BNPL company and many of the details will be in the fine print.

Can BNPL affect my credit score?

Before approving a purchase, the company will run a credit check. The initial credit check tends to be a soft check — meaning it will not affect your credit or show up on your credit report.

Some of these BNPL companies will have a monthly payment subscription offer which does have a hard credit check. This means it will show up on your credit report.

Regardless of the company, there is one time that you will not be able to avoid a hit against your credit report and that is if you make a late payment or miss one altogether. Think of this like any of your other monthly bills like your water or electricity bill. If you miss a payment, you will see your credit score taking a hit.

Pros and cons

We are not saying BNPL is automatically a bad choice. Some of these platforms report to the credit bureaus, so BNPL can help build your credit, and if used properly BNPL can be helpful in some situations. However, for Canadians already struggling with debt and unable to keep up with monthly payments, this may not be the right option. BPNL can create a false sense of security for your finances and encourage you to spend more than you can afford.

Three things to consider before you get a BNPL plan

Before you sign up for a BNPL plan, consider the following:

• make sure you really need the item you plan to purchase
• make sure you have the discipline to pay off the balance by the due date
• determine if you can afford the higher interest charges and applicable fees if you miss a payment or can’t pay off the balance by the due date

If you are grappling with your finances, there are free online budget planners offered by many reputable financial institutes and debt relief providers like Bromwich+Smith. If you are struggling financially or with debt this holiday season or any other time, professional Licenced Insolvency Trustees can provide debt relief, to help rebuild your worth.