So far on Monday Tips Monday, we’ve tackled topics directly related to credit: Things like buying a house, whether to finance or lease that new car or how to avoid the credit card trap.
But how much do we really know about our credit, and why does it pay to know more?
Do you know your credit score?
It would seem that many of us, myself included, aren’t exactly keeping score of our credit. But, rest assured, creditors are.
“Your credit score is a three-digit set of objective numbers that lenders will use to determine whether or not they’re willing to extend you credit,” said Matt Fabian of TransUnion Canada.
In Canada, those digits are determined by two credit reporting bureaus: Equifax and TransUnion
“There’s a lot of things that go into that,” said Fabian. “So your track record for repaying your credit or your loans, how much money you currently owe, how long you have had credit, so your credit history.”
He added that your score will determine if a lender will loan you money, how much and what the interest rate will be on that loan.
So having a high score carries big benefits. But how can you build your rating?
“So, No. 1, obviously, is pay your bills on time,” said Suzanne Holland of Valley First, a division of First West Credit Union.
“No. 2 is credit utilization. Don’t max out all of your credit; try to keep it within 50 per cent of your limit. So if you have a $5,000 credit card, keep it at $2,500 or less.”
Holland added that No. 3 is utilizing different types of credit, like installment loans (loans, leases and mortgages) and revolving credit (credit cards and lines of credit).
Of course, there are other things you should be aware of when it comes to your credit ranking.
“If you are not the primary borrower on the loan, you may not be having it reported to your credit bureau,” said Holland.
“Which means you’re not building credit, even though you’re responsible for the repayment.”
And for those who think checking your credit score will lower it?
“That is a myth,” said Holland. “You are allowed to inquire with the credit bureau agencies directly, and it does not impact your credit score.”
Finally, even if you happen to be so rich that you don’t need to borrow money, there’s still one good reason why you should monitor your credit rating: Identity theft.
“Because fraudsters can apply for credit in your name and utilize that credit,” said Holland.
“And by checking your credit, you can identify that early and stop it.”
So know your credit score and check it regularly — it’s easy to obtain and you can get it for free from TransUnion or Equifax.
There are even a number of apps, like Borrowell or Credit Karma, that will provide it straight to your phone. And most financial institutions will make the number available to you in person or online.