Your Financial Reputation

Your

Financial

Reputation

Build it or Blow it!

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 Report.com
Equifax – available in 18 countries
TransUnion – available in 35 countries

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