A credit score matters more than you think
You can order your free credit history once a year from Equifax or TransUnion Credit Bureau
A poor credit score can wreak havoc with your ability to own or rent a home and buy a car. It can also hurt your chances of being hired for certain jobs.
Maybe you hurt your score by overusing your credit cards or by not keeping up with student loan payments or household bills. A separation or divorce may have had a devastating impact on your financial health.
The good news is that with time and discipline, it’s possible to repair a bad credit history, according to Anne Arbour, a GTA financial educator with the Credit Counselling Society.
“We get calls from people from 18 to 80 years old. A bad credit score can affect anyone at any time. Last year, we took calls from more than 67,000 people,” says Arbour.
You may not even be aware you’ve damaged your credit history — using more than 50 per cent of your credit card limit, not paying the minimum balance on debts or making late payments are all factors.
With the competitive rental market in southern Ontario, landlords are looking for people with high credit scores who have a history of making payments on time. Some employers, such as banks or companies that require employees to handle other people’s money or be bonded, also look at credit scores.
But no one can look at your credit report without your permission, says Arbour, and if you decline, a landlord or potential employer may wonder what you have to hide.
“One of the biggest impacts of bad credit is the emotional impact,” she adds. “It’s very stressful and can affect your relationships and your productivity at work.”
How do you fix a poor credit score? The first step, says Arbour, is to get your credit report; you can order it from Equifax or TransUnion Credit Bureau once a year for free. “It lists your history of borrowing other people’s money, whether it’s a student loan, credit card or mortgage. Things good and bad are reported and your credit card history is listed for every month.”
Each type of credit will have a letter and number associated with it, for example R1 or R9, designating a revolving account — such as a credit card, line of credit or store credit card. R1 means you pay your bills on time; R9 is poor and indicates the debt has been written off (not paid) or you’ve declared bankruptcy.
You’ll also find your credit score from 300 to 900. “In this case, the higher number is better,” says Arbour. “Nine hundred is a bit of a unicorn, but certainly people score in the 800s. It’s a really complicated calculation, but it’s a quick way for creditors to assess risk.”
Once you have your credit re- port, sit down with a credit counsellor or someone you trust who has money management skills “to figure out where the leaks are and why you are relying on credit so much,” says Arbour.
Not-for-profit agencies, such as the Credit Counselling Society, don’t charge a fee for their services.
“None of us are born with good money management skills,” Arbour says.
“We may have learned the wrong habits or simply not learned good ones. Money is one of the last great taboos and we don’t like to talk about it.”
The next course of action is to reduce your debts. High-inter- est credit cards and lines of credit should be first.
She says for students living away from home for the first time or newcomers to Canada, credit is a new concept. “Typically, people make some mistakes and learn their lesson, but some don’t. People forget what credit truly is; it’s using someone else’s money.”
A credit counsellor can help with a realistic budget and explain the steps to improve your credit record.
“We might suggest giving up a fancy rewards point credit card for a no-frills card with lower interest,” says Arbour.
“If a client has real stress and is not getting ahead, we will develop a financial management plan and work with creditors to reduce or eliminate interest on debts.” They’ll also look at options such as bankruptcy, if the case merits it.
Once you’ve drawn up a budget, stick to it and pay close at- tention to every dollar you are spending, says Arbour. Daily trips to a coffee shop may seem inconsequential, but can add up quickly.
Consider a secured credit card to improve your score. These are cards with very low limits and require holders to put down a security deposit as collateral. If you make your payments, the lender will eventually offer an unsecured credit card and return your security deposit.
“A cellphone contract is another great way to improve your score, as providers report very quickly to the credit bureau,” says Arbour. “But if you miss a payment, even by a day, it can quickly hurt you.” The Credit Counselling Society offers a host of free workshops, webinars and resources that can help with budgeting and credit repair that people can access at www.nomoredebts.org.