Let’s get to the nitty-gritty of credit. You may have read “Credit 101” but that’s only scratching the surface of understanding credit. Your overall credit report is important for:

  • How creditors decide to loan you money
  • How landlords accept you as tenants
  • How insurance rates are assessed

Basics

Your credit report is an overview of your history for obtaining and using credit. When you make a credit application for either a loan, rental or a credit card the information that you provide is shared with credit reporting agencies – commonly referred to as Credit Bureaus. The information that is collected by the Bureaus is compiled into your credit report and your credit score is generated.

Credit Rating: each individual creditor that you have (student loans, credit card companies, phone companies, ect) generates their own rating for you. The rating will directly affect your score. Here’s how the rating breaks down:

 Rating  Status
0  Too new to rate; approved but not used
1  Pays within 30 days of billing
2  Pays between 30 and 60 days
3  Pays between 60 and 90 days
4  Pays between 90 and 120 days
5  Pays after 120 days
6  Rating does not exist
7  Making regular payments through a special arrange to settle debts
8  Repossession
9  Placed for collections, moved without giving a new address or bankruptcy

Credit Score: This essentially assesses your risk. The score is determined by a combination of factors such as your credit rating, age, number of years on file and your previous credit history. Your score can range from 300 to 900 with 680 being the recommended score. The higher the score, the lower the risk for the lender and that translates into easier access to credit, lower interest rates, and in some cases, an ability to negotiate exceptional terms and incentives.

Building Your Score

The goal is to have a very high score. There isn’t much you need to do other than make the minimum payments every month or even better, pay off your entire balance! The more creditors you have, the faster your score builds. It’s recommended to have a maximum of two credit cards, even if you don’t plan on using them often. You only need to use your credit card once every six months to keep it active. As long as you pay off the minimum or the entire balance every month, the companies will report your good habits.

You may be in a situation where your score has been damaged severely. If that’s the case, there are definitely some alternatives for you.

  1. Secured Credit Card: You will need to deposit money (between $500 and $1000) to serve as collateral. After you make regular payments on your purchases, the company will refund you the initial deposit and will revert you back to an unsecured card.
  2. Retail Credit Card: If you’ve been turned down by Visa or MasterCard, consider applying for a retail credit card. Major retailers tend to be a bit more lenient but have higher interest rates. As long as you pay off your balance in full, it will not be an issue. After using a retail card responsibly for a period of time (a year or more) re-apply for a major credit card.
  3. Piggyback: A friend or relative can place you on their card as a secondary user. This method requires both parties to trust each other. As the secondary user, you don’t need to use your card to benefit from the primary user’s good credit.

Benefits

The infographic indicates some of the greatest benefits in achieving credit success. Although some of the benefits may not impact you in the present, the responsible habits you’re practicing will pay dividends in the not so distant future. If you’re confident in your credit score, you can present a recent report to a potential creditor and begin negotiating for better terms.

Get your report at either www.equifax.ca or www.transunion.ca