Wednesday, March 1, 2017

Understanding Your Credit Score

Canadians, do you understand your credit score and how it affects you? It can be a confusing thing to learn about, hopefully this entry can help you.

Credit Scores is how banks (and similar places) can get an idea of if you're reliable for the loan you asked for. Do you have a history of paying back your past loans and bills or did you make everyone chase you through collections? Generally, the lower your score the more of a risk you are and the higher your interest rate or need for a co-signer.

Some Basics
  • TransUnion and Equifax are the two main companies that handle credit scores.
  • You can request histories from the companies once a year.
    • This is good to see if there are any errors or possible fraudulent actions under your name.
  • Scores range from 300 to 900.
  • 650 is an average "good" score.
  • Many different companies report towards the scores but not all do.
  • Credit cards, loans, and cells phone plans seem to be the most reported items.
  • Your score is compiled by analyzing different info, such as: the types credit you have, payment history, any delinquencies, and the number or inquires.
Many different things can affect your credit score. One of the things I find most confusing is that, depending on the quantity, many positive traits can also be negative. Having different types of credit is good!... But din't have too much credit. Having people look at your score is fine... as long as it's not too many people or in too short of a time frame. Think paying off your credit card each month is great? Well, your score doesn't think so.

Now, below are some tips to help raise your credit score. As with all advice, do what works for you and look for professional help as needed.

Raise Your Score
  • Have a history!
    • Paying for everything in cash is great until you need a loan and you have no history.
    • Maybe your significant other has the loans/etc in their name so you don't build a history.
  • Have different types of credit.
    • A mixture of credit cards, loans, cell phones, etc.
  • Make minimum payments on time.
    • Phone bills seem to be the worst one for late payments. Consider making it an automatic withdrawal from a credit card or account.
  • Don't let everyone look up your credit score.
    • Vehicle shopping? Don't let every dealership run your info or the number will start dropping.
  • Have a credit card with a high balance?
    • Do you actually need that high of a balance? Consider asking them to lower it.
    • Yes, lowering the score does ding your score but having a large potential balance does that too.
  • Have a credit card for emergencies only? Consider some purchases at times.
    • If you don't make a purchase and pay it back it can't help your score much. 
  • Had something go to collections? Pay it back as soon as you're able and keep any paperwork handy as proof.
  • It actually looks better for you to make minimum payments on a credit card each month rather than pay back everything at one go.
    • It shows you can reliably make consistent payments.
Here's a past posts about Credit & Interest and your Banking Rights.