Credit scores are used by Financial Institutions and businesses to measure the risk of someone’s ability and desire to repay their debt obligations and provide insight to their overall level of responsibility.
Credit scores are based on an individual’s history and are used as a guideline to predict their future likelihood of being financially responsible.
Employers and landlords will most likely conduct a credit bureau on potential employees and renters to ensure their stability and overall character to determine if they are the right ‘fit’.
Maintaining a good credit history is easier than trying to rebuild a bad one.
Even insurance companies and others will question your previous history as it applies to bankruptcies to determine your overall risk.
Your credit score is driven by a few key factors including:
The number of inquiries (hits) that are completed on your credit score – the fewer the better. The more hits you have portrays that you are a ‘credit seeker,’ the more hits you have. Every hit reduces your score by approximately 5 points – so the fewer, the better.
How much you use of your overall credit. For example, if you have one credit card and are at your maximum limit your usage is 100%. It is better to have a lower percentage of utilization.
The length of time you have been reported on the credit bureau. If you have a credit card for a long time and it is paid as agreed this helps to increase your score.
Insuring you make your payments on time is key – ratings range from 1-9’s with the lower being better. Bankruptcies and consumer proposals will lower your score.
Avoid any collections and deal with them as soon as possible, even if it is a dispute
Here are a few pointers to consider:
- Ensure any debt obligations are paid as agreed – setting up an automatic payment and maintaining extra funds in your bank account to cover is a good idea.
Many companies will accept an automatic payment from your credit card or bank account.
When using your credit card consider making a payment to cover your purchases on a regular basis so it doesn’t add up.
Pay all bills on time including utilities as small collections on your bureau are annoying and have to be paid for when applying for credit.
If you have a dispute over a credit issue it is best to deal with it right away – you can get in touch with Equifax to learn more about your personal credit rating.
If paying bills online make sure you make a payment a few days prior to its due date as it does take a few days to settle. Consider setting up the bill payment as soon as you get the bill.
If rate shopping for a mortgage it is a good idea to use a mortgage broker as they only do your credit bureau once. If you go to various Financial Institutions they might each pull a credit bureau and this lowers your credit score as you appear to be a credit seeker.
Credit cards in joint names are only reported on the ‘primary’ card holder. It is important to ensure payments are all made as agreed even when life happens and you are in transition.
It's important that you have your own credit card to build your own credit – for instance, it often happens that one spouse is the secondary card holder and doesn’t build their own credit history
It is important to be aware of your credit rating and keep track of all of your credit cards and Banking facilities.
In this day and age more and more often we are at risk of identity theft and keeping track of your transactions can help to avoid or minimize these risks.
You can also set-up credit alerts through various companies to be notified if someone has pulled your credit bureau.
Cheers to a good credit rating and financial health!