We do a lot of verification in our lives. Is the front door locked? When does the oil in the car need changing? We go to the dentist for a checkup.
Your credit score and report are 2 items in your financial life that are rarely given a thought. That is until you find out it will affect you, usually in a not so fun way. This blog post will outline what you need to know.
First off, many readers might have heard that one of the main credit reporting companies, Equifax, was in the news because of a widespread hack which exposed over 100 million citizens’ sensitive personal information in the US. Canadians are affected as well. Make no mistake, personal information has become valuable currency when in the wrong hands. Equifax should be punished for the lack of oversight and slowness to report. Indeed, US investigators are looking into whether laying criminal charges are warranted for other related matters.
Most people know in a general sense how your credit history can affect your ability to borrow. But I would like to take a deeper dive for your edification.
To begin, you should check your credit report on a regular basis. Note I said regularly not often. Regularly means more than once in your life. You want to ensure that details reported are correct. And if not to get it fixed. Don’t rely on the few times the bank or other authorised personnel look it over. If you regularly check your credit history you will be in a much better position to deal with the fallout if you become a victim of identity theft or fraud.
Secondly, the higher the score more likely you are to be allowed to borrow on terms that are favorable to YOU. Of course you can always borrow money but the interest cost must be affordable. You want to be in the driver’s seat not the lender.
Here is how to be a responsible attractive borrower:
Pay all your bills on time, allowing time for the payment to reach the receiving institution. Don’t wait until one minute to midnight on the due date. Did you know that if you are even an hour late in paying, the entire balance will attract interest charges back to the beginning of the period? And then you are recorded as being delinquent.
Your credit report is looked upon more favorably if you are a responsible borrower with different types of credit accounts. And interestingly enough, someone I know well who has paid off their mortgage has been penalized because they don’t have a mortgage debt anymore. How ironic that careful financial management can be NEGATIVE.
Your credit score will be lower if the total amount owing is more than 35-50% of available credit. So get out your calculator if needed and do the math. These percentages are in line with the Total Debt Service Ration(TDSR) lending institutions use when assessing would be borrowers.
Delinquencies and derogatory items(no I am not making that up),will remain on your report and affect your score for years.
Too many inquiries by lenders will hurt your credit score. Also interestingly enough so will cancelling credit accounts such as credit cards. But given how identity theft and fraud are ongoing concerns, the less inactive accounts on your credit report the better. I know I am guilty of this. In 2015 when I went to a major hardware chain to buy our flooring, the amount owing was too high to pay by debit. And I usually don’t carry my credit card. So I had to apply for their store card to be able to pay. And I never used it again.
If you are a Royal Bank account holder you can access your credit history for free. In your online banking portal you will be directed to the TransUnion website. TransUnion is a competitor of Equifax.
Long term financial peace of mind depends on your proactive maintenance and productive habits. Please don’t wait until a crisis to manage or correct your credit history and score.