Get to Know Your Credit Score

Hey, princess (dudes are no exception), do you know what your credit score is? BUZZ KILL. If you're using a personal credit card, taking out student loans, paying a monthly cell phone bill, or are liable for something as grown-up as a mortgage, the credit bureau has your number—your three-digit credit score number, that is, and you need to give a care.

Within six months of assuming your first credit card, loan, or any grant from a financial institution, a file with your credit history forms, and thus your credit score, is born. A person's credit score is checked virtually every time he or she applies for any type of credit, but this doesn't automatically mean the owner of the score knows when the check is being performed, or what that number actually looks like. "I would wager that most people have no clue what their credit score is, despite it being quite easy to find out—through either Equifax or TransUnion—and how vital it is to your financial wellbeing," says Roma Luciw, Personal Finance reporter with The Globe and Mail.

A quick rundown? As Roma mentioned, there are two, main credit bureaus in Canada: Equifax and TransUnion. You can inquire with either one of these online and receive your credit score and credit report for approximately $25. Your credit report is only available free of charge if you send away for it by snail mail (requisition form available on bureau sites) but not your credit score—that you'll have to pay for.

Your credit report details your payment history and is not unlike your bill-paying “report card” (who did you owe? How well did you pay back?), while your credit score is essentially your credit “grade point average“ (the number that tells lenders how naughty you've been with debt in the past and how naughty you're likely to be with debt in the future).

As blissful as ignorance can be, financial ignorance is a bliss guaranteed not to last. Creditors rely on your credit score to decide how favourable a deal they're willing to give you. Good credit score = low interest rates, higher credit limits, most favourable terms; bad credit score = bupkis.

A good credit score is 680+; a very good score is over 750. "Anything below 600 is stinky," says Toronto mortgage agent Kevin Macklem of RDM Financial Consultants Ltd., "and 580 is the hard stop—it will be very tough to get any kind of credit." Though a large portion of young adults hover somewhere around 630 (general industry consensus), you should be worried if any of the following applies to you:
• If you've had to pay late fees on missed payments or late monthly bills
• If you routinely max out your credit cards (Kevin advises to never go over 80% of your total debt limit because it impacts your credit score)
• If you have defunct bank accounts or credit cards that you're not sure you've properly closed (even if you don't owe anything on these accounts, they need to be officially closed by you.)
• If you've been written off for any debt in the past, classified as an R9. "An R9 classification basically means that as lenders, we give up on you," confirms Kevin—credit kryptonite.

All these factors pitch in to lower your credit score, which, short of opening an investigation into a particular blemish on your record, will take you a minimum of six months to set on an upward course.

According to Kevin, however, Equifax confirmed that it pays to get up close and personal with your credit score.

Unlike frequent credit checks from financial institutions known as hard checks, which can impact your credit score negatively (signals you may be applying for a lot of credit and hence struggling with your personal finances), credit checks performed by you, known as soft checks, can actually help raise your credit score by as much as 50 points. When you check your credit score, it signals to the bureaus that you're taking an interest in your personal finances, deeming you a less risky financial client.

Once you and your credit score break the ice; take control. Roma points out that having a credit card can actually help build a positive credit score. “Paying your credit card on time every month, if possible the entire amount, and not going over your card’s credit limit can lead to a better mortgage, lower interest rates, and buyer protection on some purchases." For those of you who can't make big monthly contributions, Kevin has some good news: minimum payments can wager even better than paying down to zero if you pay regularly. "The highest score I've seen was around 845, and that was a man who was methodical about paying his bills regularly for over 30 years."

So, princess, your next splurge will be on your credit score and making those minimum payments, yes?

Written by: Elana Safronsky

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