Most of us don’t think about our credit score very often—if at all—because it’s out-of-sight, out-of-mind, right? Wrong. The problem the credit scores is that they have the power to make or break our financial, career and life plans, and yet, we know so little about them.
Let’s change that today—and from now on.
The basics: What is a credit score?
A credit score is a fluctuating three-digit number from 300 to 900 that reflects your personal financial situation at any given moment. The higher your score, the better.
As the term “credit score” might imply, this number represents your “creditworthiness.” Credit is simply borrowed money or loans. Your creditworthiness then marks your ability to repay loans from banks and lenders and the risk they would take on to lend you money.
As you can see from the image below, here’s how the rating system works:
– 300 to 629: Bad
– 630 to 689: Fair
– 690 to 719: Good
– 720 to 900: Excellent
In Canada, the two main credit bureaus are TransUnion and Equifax. According to TransUnion, the average credit score in Canada is 650, which is considered a “fair” credit score. However, 20 percent of Canadians have a bad credit score of 600 or less. We’ll talk about those effects shortly.
How is my credit score calculated?
Several factors impact your credit score at any given time, including:
– Payment history: Have you ever missed payments or paid bills and credit cards late?
– Personal debt: How much debt do you owe and across how many different accounts, types of loans, and credit cards?
– Credit history: How long have you been building and using credit and managing your money wisely?
– Range of credit types: How many types of credit, accounts, types of loans (mortgages, student, line of credit, etc.) do you manage?
– Credit inquiries: How many times have you checked your credit and opened new accounts?
Based on the credit bureau calculating your credit score, all of these factors have different weights and effects on your score. If you miss credit card payments and have outstanding debt across several accounts, for example, your credit score will be negatively impacted. The same goes if you ignore bills and have maxed-out credit cards.
The essentials: Why your credit score matters
Your credit score is directly linked to your ability to get a loan—or a good loan. We know that now.
The effects of bad credit
If you have bad credit, lenders may not lend you money. Or, they may lend you some of the loan, but at a crippling interest rate that may make paying off the loan impossible and/or lengthy. This may negatively impact your credit further, keeping you in a debt cycle that’s hard to get out of.
A few examples of potential loans are:
– New credit card
– Student loan
– Line of credit
– Mortgage for a home
– Personal loan
– Emergency or healthcare-related loan
– Debt consolidation loan
– Car loan
– Business loan
Perhaps worse still, landlords and potential employers have access to your credit score too. This means that a bad credit score could work against you and your ability to make more income, advance your career, or even rent an apartment.
The effects of good and excellent credit
On the flip side, if you have good or excellent credit, you may be approved for a larger loan and at a lower interest rate. This means that you could, for example, get a mortgage loan for a higher-priced home at a lower interest rate (so that you get out of debt faster with lower monthly payments).
You can—and should—check your credit report annually for free (using either TransUnion or Equifax in Canada) to understand how your credit is doing and where (and how) you can improve. You may even catch a mistake and improve your score on the spot.
About MLI Marble Lending Inc. At Marble Financial (CSE: MRBL; OTCQB: MRBLF) we are a group of forward-thinking financial technology experts that understand Canadian’s occasionally need help in achieving longer-term credit health. Through our industry-leading proprietary technology solutions Fast Track Loan, Score Up, and Credit Meds, we guide our customers back to mainstream credit 50% quicker than traditional methods. Since 2016, We are proud to have empowered thousands of Canadians to a positive financial future and continue to establish ourselves as a leader in financial wellness.