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How Your Credit Rating Affects Your Life
If you’ve had credit cards and a mortgage for years, you probably know something about credit ratings. But do you understand exactly what goes into your credit rating and the many ways your rating can affect you? While you are enjoying our nice spring weather (and perhaps looking at a new home purchase), here’s a refresher on credit ratings and credit reporting agencies in Canada.
According to the Office of Consumer Affairs, your credit score is “a snapshot of your credit history. It is one of the main tools lenders use to decide whether or not to give you credit.”
What Makes Up Your Credit Rating
Your credit rating begins when you first borrow money or apply for credit (whether or not you receive that credit). Anytime you borrow money, that information gets passed along to credit rating agencies.
Many of the activities you do affect your rating, such as:
- Do you always pay your bills on time?
- How long have you maintained an account or credit in good standing?
- How often do you apply for credit?
- Do you keep low balances or are your credit cards and lines of credit always at or near the maximum balance?
Anytime you are more than 30 days in arrears of a payment, your credit rating takes a negative hit. If you are always applying for different credit cards, your rating takes a hit. And if your cards or lines of credit are always maxed out, your credit rating takes another hit.
Your best bet is to always pay your bills on time, don’t apply for credit willy-nilly, and don’t keep your credit cards or lines of credit perpetually at the maximum limits.
How Does Your Rating Affect You?
It’s nice to know what goes into your credit rating, but how does it actually affect you?
You likely know that you are affected anytime you want more credit, such as when you want to get a mortgage or finance a car. But your credit rating affects other aspects of your life that don’t seem like credit issues. If you want to rent an apartment, you will need to submit to a credit check. If you want to open a bank account, get a bank card or overdraft protection for your account, your financial institution will check your credit rating, even though they aren’t necessarily extending new credit to you.
You may remember that when you got your very first bank card, your withdrawal limits were likely quite low (meaning if you deposited a cheque, you only had access to a small portion of it right away). That’s because young people have little to no credit history. You don’t get privileges of higher withdrawal limits or access to a lot of credit until you’ve established some credit history.
Some employers, especially those in the financial industry, will want you to undergo a credit check before they will extend an offer of employment to you. Therefore, your credit rating affects more than your ability to get a credit card.
How Do I Learn What My Current Credit Rating Is?
In Canada, there are two major players in the credit rating arena: Equifax Canada and TransUnion Canada. You can obtain your credit rating directly from these agencies. Here are their websites:
If you are willing to wait for snail mail, you can usually receive your credit rating for free. You can also get the information much faster online, but both Equifax and TransUnion generally charge a fee for online delivery.
Remember, maintaining a solid credit rating is one of the things you can do to stay financially healthy. You wouldn’t want to lose out on credit because you’ve been sloppy about paying bills and maintaining your accounts.