Credit and Your Credit Rating Investment and Finance 12

How Much Do Canadians Know? A recent credit report survey of Canadians found: 24% knew their personal credit rating 15% had requested a credit report for themselves 50% did not know what factors contribute to a credit rating.

What is a Credit Rating? Unless you do all your business in cash, you probably have a credit rating. It contains a number and a letter. The number – between 0 and 9 – shows how fast you pay your bills. “1” means you pay your bills quickly, while “9” means you never pay them. The letter tells lenders the type of credit you use: “R” stands for revolving, and is the most common. If you have a credit card, you will have an “R” credit rating.  “I” stands for installment. This means you borrow money once, then make regular payments. Leasing that sports car will give you an “I” rating. “O” means open, like a line of credit. Here the money you borrow is due at the end of a set period.

What is a credit rating? Unlike the movies, an “R” rating isn’t bad! If you pay your credit card bills in full every month, you’ll rate an “R1.” That’s as good as it gets. But if you skip town without paying, or declare bankruptcy, you’ll be at the bottom of the chart – “R9.”

What is a credit score? While your credit rating looks at your credit history, your credit score measures your financial health at a set point in time. Credit agencies use a number of different factors to arrive at your credit score.

Factors that Make up Your Score Your payment history If you’ve ever declared bankruptcy How much money you owe How long you have had credit The type of credit you use If you’re trying to get more credit (ex. There have been recent requests for your credit report)

What Score Do I Need? Your credit score will be between 300 and 900. The higher your score, the more likely you are to get a loan. A higher credit score can also help get you a lower interest rate. But there’s no guarantee. You may need a credit score of 750 to lease that sports car, but your landlord may be fine with 650. It’s up to each lender to decide.

Building a Good Credit Rating Here are some simple things you can do to build or improve your credit score: 1) Pay your bills on time and in full (at least pay the minimum payment). 2) Don’t go over the limit of your credit card (Keep your balance low – below 35% of your credit limit if you can. The higher your balance, the more it affects your credit score).

Building a Good Credit Rating 3) Don’t apply for credit too often. Too many lenders asking about your credit in a short period of time can lower your credit score. 4) Pay off your debts as quickly as possible

Building a Good Credit Rating 5) Build a strong credit history. You may have a low score simply because you don’t have a long record of borrowing money and paying it back. You can improve your score by using a credit card – wisely.

Another Funny Money Moment… Clip Time! Another Funny Money Moment…