Don’t Ignore your Credit Scores. We cannot stress this enough. They hold a lot of power, preceding your reputation with banks, landlords, some jobs and purchases like a car or a monthly cell phone contract. Poor credit behaviour can quickly raise barriers in your everyday life and prevent you from conveniently accessing goods and services.
As part of our credit counselling services, we help our clients understand what their credit scores mean and guide them with strategies to keep them healthy.
What is a Credit Score?
A credit score is a 3-digit number between 300 and 850. It represents your risk level to creditors, with 300 being the poorest, indicating a higher risk. Individuals with a score of 800+ are deemed low risk. It provides creditors with insight into your payment habits before they offer you products on credit. Mortgage lenders, for example, will charge higher interest rates for higher risk applicants. Landlords use this information to assess whether you will pay your rent on time. They can choose to turn down applicants with a history of poor bill payment behaviour.
Credit bureaus, like Equifax and TransUnion, compile this profile of you from the information they gather from the marketplace. Creditors like banks, credit card companies, government institutions, utility suppliers and retailers report back to them with R ratings attached to your record. An R1 indicates that you pay your bills on time and an R9 represents a defaulted debt, in the public record, which ended in bankruptcy.
The agencies take your R rating along with other information, such as the amount of credit you have access to and what you have used up. They sum it up into a score. While creditors can only access this information with your permission, many, like auto vendors, make this a mandatory part of the application process. If you do not allow them to check your credit report, they will not assess you for a car loan or lease.
Your credit scores could vary between the two agencies because they collect and receive data from different sources.
Monitoring Your Scores
We advise all our clients to monitor their credit scores at least annually. You can request yours by visiting both Equifax and TransUnion websites, who may charge a fee for the service. Private lenders, like Credit Karma and Borrowell, provide convenient insight to your credit scores on an app, updated each month.
It is important to monitor your report regularly, even if you have a good credit rating because it allows you to stay on top of unusual activity and identity theft.
Building Good Credit Habits
You can implement many strategies to repair, build and maintain a good credit score. Not bouncing cheques or ignoring your debts and paying your bills on time is the most obvious. However, other factors also impact this number including applying for too many credit cards or payday loans.
If your credit score has lapsed into the lower numbers, then let’s examine why. Our credit counsellors can help.
If you have been unable to pay your bills on time, then let’s look at solving this. Your credit scores will definitely be impacted if you have bills in collection. We help you with concrete debt management strategies that are focused on keeping your credit scores healthy.
A good credit score makes life easier, all around.
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Repairing a damaged credit score is quite achievable, even in the direst situation. You simply need to follow a few rules, remain patient and focused on sticking to your plan.