The terms credit score and credit rating are tossed around so much, they may be losing their effectiveness. Does the statement “You have a bad financial reputation” get the point across a little better?

What does it all mean? Having a good financial reputation may not seem important now, but at some point in the future you will need it in order to buy a car or a home, start a business, rent an apartment, or borrow for an emergency. You wouldn’t hire someone that you didn’t trust, nor would you lend to someone that has a history of not paying people back, so why would someone lend to you if have a bad reputation with credit.

What is Credit?

Credit can be defined as having confidence in a borrower’s ability and intention to repay money that has been lent to them for the purchase of various goods and services. A credit score or credit rating is used to determine whether or not your financial reputation is good enough for a lender to trust that you will repay them. Credit Scores are made up of:

  1. Your payment history – 35%
  2. How much debt you owe – 30%
  3. How long you have used credit – 15%
  4. Excessive new credit or credit enquiries – 10%
  5. Your mix of credit & loan types – 10%
How to Build It!
  • Create an A+ payment history as it represents 35% of your credit score
  • Always pay bills on time
  • A cell phone plan with automatic payments can help build your score
  • Take out a very small short term loan (with small manageable payments) to build credit
  • Forgetful? Automate as many payments as possible
  • Pay credit cards in full every month if possible
  • ALWAYS pay more than the minimum required card payment
  • Pay more than the outstanding balance
  • Get a secured credit card
  • Do not get more than one or two credit cards
  • Do not let bank accounts become overdrawn
  • Reduce debt
  • Keep the balance low on all available credit
  • Having a mix of different credit types
  • Check your score annually of errors
How to Blow it!
  • Missing payments
  • Making late payments
  • Making the minimum payment only
  • Missing 2 or more payments in a certain period of time
  • 90 days of not paying a bill is a long lasting black mark on your score
  • Maxed out credit cards (should be no more than 25% of credit limit)
  • Always carrying a high balance on all available credit
  • Too many credit inquiries (you keep trying to borrow from someone)
  • Debt consolidation loans
  • Bills sent to collection agencies
  • Bad debts written off by lender (they gave up on you ever paying)
  • Defaulting on loans
  • Home foreclosures or short sales
  • Bankruptcy
  • Buying things you can’t afford on credit
  • Forgetting to do things that help build your financial reputation
Benefits of Having a Good Credit Score
  • Easy access to credit when you need it
  • Better interest rates on loans, mortgages, auto financing, etc…
  • Higher borrowing limits on lines of credit and other loans
  • Renting a home or apartment will be easier
  • Starting your own business won’t be so difficult
  • You can get pre-approved for credit / loans
  • It may help you get your dream job
  • You may get better home and auto insurance rates
Who Checks your Credit Rating
  • Banks – before they grant loans, student loans, mortgages, etc
  • Auto Dealers
  • Any store that allows buying on credit / instalment payments
  • Landlords – they want the rent paid on time
  • Employers
  • Car Insurance companies
  • Cell phone companies – plans require monthly payments
Check your Credit Report for Free

Annual Credit
Equifax – available in 18 countries
TransUnion – available in 35 countries