Incurring debt is part of life for most people.
Understanding how best to handle credit will help you maintain control of your overall financial situation as your credit affects your ability to borrow money.
Your Credit Score...
Your credit report is simply a listing of all your mortgage and consumer debt. In Canada mortgage brokers use two credit bureaus, Trans Union and Equifax and they have a credit file on anyone who has ever borrowed money. Every time you borrow money or make a payment on a loan or credit, the lender reports the information about that transaction to these two agencies. In addition to credit information, you will also find liens and judgements on your credit report as well as your address and possibly your work history. The accumulation of all of this information is called your credit report.
One thing that many people do not know is that you have a legal right to obtain a copy of your credit report. As Mortgage Agent, I can assist you in obtaining a copy of your report ( you can do this online) I can go through it with you to verify that all of the information is true and correct.
A credit score is a rating used by a lender to help determine whether you qualify for a particular credit card, loan, or service. Credit scores run from 300 on the low end to 900 points based on information on your credit file the credit reporting company analyzes your information using a complex mathematical model to yeild your credit score. CMHC and Genworth have limits of 600-650 for insured mortgages & for premium products 650-680 is a minimum. If your score is below these numbers you would possibly qualify in the private or alternate lending world. Most credit scores estimate the risk a company incurs by lending you money or providing you with a service-specifically, the likelihood that you’ll fail to make payments in the next two to three years. The higher the score, the less risk you represent.
The good news is that your credit report is a working document which means you have the ability, over time, to repair any damaged credit and increase your credit score.
The number one way to increase your score is to pay down your cards to 30% of their limits. Revolving credit like credit card seems to have a more significant impact on your score than car loans, lines of credit, and so on. By paying down your cards 30% you are leaving a big gap between what your limit is and what you owe a month– that is very favourable to increasing your credit score.
Raking up a large amount and then paying it off in monthly installments can hurt your credit score. If there is a balance at the end of the month, this affects your score. Credit formulas don’t take into account the fact that you paid it all off the next month. By being more accountable of your spending on a daily or weekly basis through the use of a budget, you can keep those cards below the magic 30% mark.