If you own a credit card or have ever taken out a personal loan to purchase a car or apply for a mortgage — there’s a credit file on you. Based on that credit file, you have a corresponding credit score that rates all your borrowing habits. This three-digit number shows you and any potential lenders the quality of borrower you are based on a number of different factors including your ability to make payments on time, diversity of credit that you have, credit inquiries made under your file and more.
So what’s your credit score? While you don’t need to have your number memorized like a pin number or password, knowing what it is and checking it annually can give you a good idea of what type of borrower you are and your chances of getting approved for future loans — something that becomes very important especially when purchasing a car or home. But where can you check your credit score in Barrie? Is there a cost associated with checking it out? We’ll unpack all that and much more, but before we begin let’s find out what makes up that score in the first place!
What Is A Credit Score?
A credit score is a three-digit number that ranks your ability at paying back your debt. In Canada, the scoring system goes from 300-900. The higher the score the better it is for you at attaining and being approved for things such as a car loans, mortgages, a new rental unit and in some cases, even landing a job.
In Canada, the average credit score sits at around 600 but keep in mind the industry benchmark for a good credit score in Barrie is 650 or above. Once you reach that number or higher, as a borrower you’ll be able to qualify for loans with better interest rates from lenders and qualify for higher credit limits. Anything lower than that, and you should consider working hard towards improving it as your number might limit you from getting the loan you want or qualifying for certain credit advantages.
Where Can I Check My Credit Score?
In Canada, you can check your credit score on Equifax Canada and TransUnion Canada. Unfortunately, this will typically come with a cost associated to it but you have the benefit of accessing it in real time when you do it online. Alternatively, it’s always worth asking a third party lender that’s already looking into it for themselves. While they’re not obligated or even allowed in some cases to disclose that information to you, they may disclose it to you if you ask.
With that said, if you’re heading into a situation where you know a lender or third party will be looking into your credit score because you’re applying for a loan, let’s say — you should always have a look at your score beforehand! Depending on what you’re applying for and where your credit score ranks, you can have a pretty good idea on whether or not you’ll get approved or whether you have a chance at striking a good deal on interest rates.
What makes up your credit score?
The FICO model is the most commonly used credit scoring model in the world, so for the sake of argument we’ll be focusing on their methods. Credit scores in Barrie are essentially determined by mathematical algorithms. Of course, the exact formulas that are used to determine that are mainly kept under wraps by credit bureaus, but we still have a general idea on how they come up with them and how much each factor is weighed against each other. It breaks down as follows:
Payment history (35%) – This is a factor that weighs the heaviest amongst all others, and rightfully so. Payment history assesses your ability to make payments back on time to creditors and any third party companies. Whether it’s that phone bill or mortgage payment, keeping up with payments will help ensure high credit scores.
Credit Usage (30%) – No matter how much credit you possess, whether it’s $3,000 or $10,000, make sure you never surpass 35% of your available credit. No matter how tempting it may be to constantly tap your credit card to make purchases, if you hit your credit’s max on a regular monthly basis, it can sway the algorithm negatively as it may imply you that you don’t manage finances responsibly.
Credit Length (15%) – The longer you maintain relationships with creditors, the better it will reflect on your score. If you’ve been able to maintain a positive relationship with creditors overall (i.e. make payments on time), that will make you look even better. But of course, relationships can sour and some unfortunately have to come to an end. This is especially true if you need to do some credit repair or financial management, you may find yourself having to cancel a couple credit cards to help get you on track again. If you ever find yourself in this position, it’s always better to cancel with creditors that you have newer accounts with than older ones.
New Inquiries (10%) – Everytime you apply for a loan, the lender will pull out your credit history to determine whether or not you’re a high risk or low risk candidate. This is normal and all a part of the process. With that said, you only want to do this in moderation as it can dramatically affect your score.
Account Diversity (10%) – While you might think that having one credit card account is the most financially responsible thing to do, when it comes to your credit score they actually reward those that have multiple credit products on their file. Especially if you’re paying back debt responsibility, the most diverse your account is, the more that it shows that you’re able to manage debt responsibility.
Why It’s Important To Know Your Credit Score
Credit scores aren’t something you want to push under the rug, it’s something you want to understand from all sides because it has the potential to have a major impact on your life, especially when it comes to making big purchases like a car or home. In both cases, you’re likely to apply for a loan in order to afford that purchase. If that’s the case, your credit score will determine everything from the types of lenders you qualify with, the interest rates that are offered and whether or not you even get approved for it or not. Credit scores can also impact your ability to land certain jobs, mostly in the financial sector, as well as your ability to score rental units. In all cases, having higher credit scores will benefit you opposed to lower ones which will limit your options and negotiating powers.
Knowledge is power and knowing your credit score beforehand will help you determine your chances of getting approved for certain things or even have you reconsider your course of action. For example, if you’re looking to purchase a car but your credit score is well below 650 — if you’re able to, you may want to consider repairing it first in order to snag better loan deals down the road instead of doing it now and risk paying very high interest rates.
Credit Scores VS. Credit Reports
Before proceeding any further, we need to differentiate the difference between a credit report and credit score. The two are a source of a lot of confusion as many people use the two interchangeably when in reality, the two actually look into different things.
A credit report contains a lot of personal financial data on you and your borrowing habits. It has details regarding loans you’ve taken out in the last couple years, your ability to repay your debt, the amount of money you continue to owe, your credit limit and much more.
Any lender or third-party association that’s looking to lend you credit or wants to check out the quality of candidate you are has the ability to get a copy of your report. More often than not, they’ll like to see a lot of “Paid as agreed” indicators on your file which will help flag you as a good borrowing candidate. No matter what, you always want to try your best to try and maintain healthy financial habits because it all appears in this report and stays on your file for about six years.
Credit scores on the other hand is simply a score based on information on your credit report. For lenders, it basically quantifies what level of credit risk you are. Depending on who’s looking into it, lenders may ask to see one or the other, or even both.
Unlike credit scores, you’re entitled to see a free copy of your credit report at least once a year through Equifax Canada and TransUnion Canada. In most cases, it’s best to get a copy from both bureaus to check and make sure there aren’t any inconsistencies and errors. If you need a copy of your credit report right away, both bureaus and give you a digital copy for a cost.
What Do I Do If I Have An Error On My Report?
People make hundreds of transactions a month, as well as dozens of other financial inquiries on top of that throughout the year. Because of that, it’s not totally unheard of to have some sort of errors on your report which is why it’s incredibly important to review it at least once a year. Some errors might not have any detrimental impact while others might be costing you a lot more. The sooner you get to the bottom of any errors, the better your report and score will reflect how you actually are as a borrower. Industry experts estimate that there are errors on 10-33% of credit reports, so it’s not a bad idea to check yours out to avoid being a part of this statistic.
If you find an error, you have the right to dispute it to the credit agency in question. This is usually in the form of filling out an online form which asks you detail the errors of dispute in question. While you’re doing this, make sure you have supporting documents on-hand to help strengthen your claim. Once you’re done filing, the credit agency will then take matters to the party who submitted those details in the first place.
If your report is corrected and all good to go, a new version will be sent to you with the corrections. If the issue is not resolved to your satisfaction, you have the right to add a statement to your report highlighting your issue with that particular part of your credit history. This statement will also be seen by any third party lenders looking into your background. This will allow them to judge the situation for themselves.
Conclusion: Stay On Top Of It
At the end of the day, the moral of the story here is to stay on top of your finances — from all angles. Understand the financial terms, understand your credit score and what it says about you and ultimately, take action if you need to.
Everyday purchases and loan applications can have a major impact on your financial background and can impact the way you make purchases in the future. They say knowledge is power, and in the case of credit scores — that’s definitely the case. The more you know, the more you can do to make sure your credit score in Barrie lands in the highest scoring tier.