Credit Ratings...5 Important Questions

A sound financial situation begins with a sound credit rating. Yet many people give little thought to just how much good credit can help them realize their plans for the future. Here are five key questions to consider.

What is a credit rating? A credit rating is a snapshot of your reputation for paying back debts. Credit bureaus keep track of your credit history, and financial institutions use it in deciding to give you credit or not. Along with your repayment history of the past six years, your credit rating also includes personal information, such as your social insurance number, telephone number, date of birth and employment history.

How is a credit rating established, and by whom? This is the job of credit bureaus like Equifax Canada, Trans Union of Canada or Northern Credit Bureaus Inc., who keep track of people’s borrowing and repayment habits. If you have ever had a personal loan, applied for a credit card or a mortgage, you are among the 21 million Canadians who have a credit file.

Who can know my rating, and for what purpose? Any company considering granting you credit or providing a product/service before being paid for it will want to check your credit rating. Whether it’s that new sofa you won’t make payments on for six months or your dream home, your credit rating plays a vital role in a company’s decision to give you credit. But first, you have to give them permission to check your rating, which is usually part of the credit application process.

How can I find out my credit rating? You should always know your credit rating, if only to make sure there are no errors in your file. You can apply to one of Canada’s three main credit bureaus to have your credit rating mailed to you free of charge once a year. You can get faster results online for a fee, or pay a subscription fee to have your rating sent to you several times a year. Along with your credit rating, a list of organizations that have checked your rating in the past is included.

What can I do to improve my credit rating? Quite simply, pay your bills on time. And stay away from services that offer to “fix” your credit rating. Over time, responsible credit practices will help you establish or re-establish a good credit rating. If you’ve had problems in the past, make prompt payments a habit. In time, your rating will improve. Check your rating to make sure it does not contain any clerical errors or that your identity has not been stolen. If you find an error, make sure you contact the credit bureau to correct the problem.

Good credit is an important personal asset and a good rating will help you have access to it. Neglecting your rating would be a big mistake!