Here's some homework on getting a good grade on your credit history and rating!
Should I be less worried about my credit rating than my R score?
Certainly! As long as you've got it under control. As soon as an institution decides to extend credit to you, it goes to a company that holds your credit history (record), like TransUnion or Equifax. This history establishes your credit rating, which is a number between 300 and 900 (900 is an A+).
Here are some of the organizations that look at your credit history:
- Banks and financial institutions;
- Credit card issuers;
- Rental car companies;
- Retailers (chains and department stores);
- Levels of government;
Having a good rating means you've got a better chance of getting the apartment, environmentally-friendly car or phone package you want.
Annie-Pier, what are the benefits of a good credit rating?
An advisor at the Desjardins Université Laval location, Annie-Pier Larouche explains that "while credit is accessible, a poor rating will make it hard to get the really important loans, like a car or home loan." She points to one major advantage of a good rating: getting better interest rates for the same purchase. Why? Because we represent less of a risk. "Everything's easier when you have a good credit rating," she concludes. It keeps you from having to turn to a co-signer to buy your car.
Credit history: your finances' Facebook profile
Your credit history reflects your financial behaviour. Every event tells lenders when you opened your account, about your loans, how quickly you pay them off, missed payments, and all financial and credit actions.
More concretely, this is the information that lenders rely on to get a picture of your financial reputation and make a decision. The following behaviours will cost you points:
- Late and missed payments;
- Bounced cheques;
- Fines owing;
- A lot of credit applications (cards, loans, etc.);
- Unpaid debts and credit cards, including banner cards;
- Lines of credit, loans, bankruptcies, and debt sent to a collection agency are included.
Why have a good credit history?
"Among other things, to have a better place to live, to travel, get a job and start your own business," adds Annie-Pier Larouche. "Your ability to pay today will influence a lot of your future."
How do you avoid having to retake the exam?
Your credit history begins when you borrow money for the first time. Often, this is by using a first credit card. Here, the same advice applies to everybody, young and old: it's better not to use it if you can't pay it off at the end of the month and avoid interest and penalties.
Annie-Pier Larouche also notes that "if you only pay the minimum, the total debt goes up, which has an impact on the credit record. If the balance is always at the limit, the credit bureau sees us as a risk." In her opinion, we should not use more than 70% of the balance available for credit card purchases, for example, no more than $1,400 with a $2,000 limit.
Annie-Pier, what do young people often overlook when it comes to credit?
"Some young people overspend without considering the consequences or calculating their real ability to pay based on their income. Frequently, desires come before the budget."
She tells them about alternatives that will keep them out of the debt spiral, advising on differentiating between "wants and needs." She's seen many underestimate the bills for cell and Internet services: "One missed payment can affect the credit record," she reiterates.
It can be done, but it takes time. It takes at least six months to a year to start improving your credit rating. "That's why you have to take action before it's too late," Annie-Pier Larouche explains.
Some final tips?
- Be patient, less emotional.
- Take the time to shop, for example, for your telephone provider.
- Limit how many cards you have and, especially, use them based on your ability to pay and repay.
Your credit history isn't there to close doors, but rather to open them.