5 Reasons to Get to Know Your Credit ScoreApr 08, 2018
Like most Canadians, you probably know that maintaining a good credit score can help you borrow money and obtain better interest rates. The question is, how well do you know your credit score? According to a recent study, only 39 per cent of Canadians monitor their credit score and only 27 per cent know how it’s calculated.
Here are five reasons why you should take the time to understand your credit score and the impact it can have on your finances:
- Protect yourself against identity theft
Seven out of 10 Canadians understand the devastating effects of identity theft. Keeping tabs on your credit score and regularly checking your credit report can alert you to unusual or suspicious activity on your credit cards or accounts.
You can take steps to protect yourself from fraud by managing the privacy on your social media accounts, monitoring your bank account closely, and protecting your PIN. You can also sign up for push notifications which can alert you via text or email about any suspected fraudulent activity on your credit cards or bank account. And, you can use TransUnion or Equifax to monitor your credit score online.
- Improve your credit
By monitoring your credit score, you can work to improve your credit over time. You can do this by:
- Paying your bills on time and in full each month
- Keeping your credit card balances low, or lower than 35 per cent of the credit limit — use this online tool to calculate your credit utilization
- Paying more than the minimum balance on your credit cards each month
- Keeping the amount of credit applications to a minimum
- Ensuring you have a credit history. Sometimes, your credit score may be low because you have no history of borrowing money and paying it back. Use this guide from the Financial Consumer Agency of Canada to learn about using credit wisely.
- Get to know your credit rating
Your credit rating is different than your credit score — it’s another way that credit bureaus rate your credit history. Each type of debt in your credit history is rated by your lenders:
- “I” is for Installment credit, such as a car loan
- “O” is for Open credit, such as a line of credit
- Credit card debt is categorized as “R” for revolving or recurring credit
- “M” means mortgage debt
Beside each of these loans, you will also see a number on a scale from 1-9. A score of 9 can mean very poor repayment history or insolvency, and a 1 means an excellent payment schedule and always paid on time. Knowing this can give you the power to improve your credit rating and monitor it for any changes. It can also be a great reminder to improve your debt repayment habits, either by paying down debt each month or exploring your debt relief options through a debt professional.
- Dispel myths you may have heard about your credit score
My Money Coach website offers a list of 7 credit score myths that many people believe about their credit score. This includes: what happens to joint credit after a divorce, whether your personal credit score affects your spouse or whether your income affects your credit score, to name a few.
- Learn how to rebuild damaged credit
There are many reasons why your credit score can be negatively affected. Life events like a job loss, serious injury or divorce can affect your ability to manage your debts.
When you miss multiple payments, your debts are sent to a collection agency
Additionally, these same things can lead to filing a consumer proposal or bankruptcy in order to resolve your debts, which can leave your credit fractured. In order to rebuild credit for any purpose, the most important thing you can do is pay your bills in full each month and build up a good credit history. If you have filed an insolvency, the Licensed Insolvency Trustee who assisted you will help you build a plan to restore credit.