Why your credit score is important
You want to buy a house? A car? Start a business?
Your credit score will help determine if you even qualify and what interest rate you will receive.
Yup, maybe it’s something you’ve never thought about, but even skipping a few payments on smaller bills will have an impact on whether you can qualify for a loan and at what rate!
Your credit score is a three digit number representing your “credit worthiness”. The higher the number the better.
Credit scores are based on:
· 35% of your payment history
· 30% credit utilization
· 15% how long you have had the credit
· 10% how often and recent you applied for credit and received new credit
· 10% what different types of credit you use (credit cards, mortgage, LOCs)
Here is the range, but keep in mind there is a slight variation between Canada and the United States.
Your chances of getting a better rate on a more expensive purchase are higher when your credit score is good.
Keep this in mind when you are thinking about moving houses, buying vehicles or need a loan.
Also, couples, listen up! Even though I am a HUGE advocate for joining finances if you are in a healthy and committed relationship, it’s important to consider whether you're building up credit for yourself. You may think that sharing a card and having one partner be the primary cardholder is great, but if you don’t have something in your name showing that you are capable of handling credit, you may be surprised to learn you won’t qualify.
Having a simple, no-fee credit card where you occasionally place an expense on it and immediately pay it off or having a utility bill in your name will definitely benefit you if your needs change in the future.
Remember, your credit score is not the same as your partner’s even though you both are contributing to the bills.
And look, if your credit score is terrible right now, don’t worry! You can fix it. It will take a little bit of time and planning and you can rebuild and increase your number.
1. The first thing you need to do is find out your score! It only takes a few minutes, and will give you a picture of where you’re at. Here are two websites to access the info you need:
2. Next, figure out if you can set up autopay to get your bills and minimum payments paid on time. (Check out my “Making automatic payments and why is works” blog here)
3. The longer you keep a credit card the better. If you’ve had a card for years but don’t love the benefits on it, switch to a no-fee card within the same institution just to keep your name on file. Place small purchases on this card and pay it off in full every time. This little trick helps!
4. Keep your credit use low on credit cards by getting a credit limit increase on your card. Apply for increases only if you believe you won’t use it all up!
Knowing where you’re at with your credit score will not only increase your financial confidence but allow you to feel a sense of control over your financial situation.
Good luck!