Did you know that your credit score can mean the difference between an affordable mortgage rate and an astronomical one? This three-digit number can unlock endless possibilities for your financial future, but only if you know how to properly maintain it. The first step? Knowing how to check your credit rating.
What is a Credit Rating?
Your credit score is generated by a mathematical formula based on information in your credit report (read on to learn what your credit report entails). This rating is designed to predict risk, specifically the likelihood of whether or not you will fall behind on your credit obligations within 24 months of the scoring.
Credit scores, also known as FICO scores, range from 300 to 900. The higher your credit score, the better your credit rating. For example, statistics show that less than 2% of people with a credit rating between 750 and 799 will default on a loan or declare bankruptcy within the next two years. As such, people with this score are very likely to qualify for the best mortgage rates available.
What’s in a Credit Report?
A credit report is extremely detailed. Not only does it contain information on every loan you’ve acquired in the past six months, it also includes notes on whether or not you paid dues promptly, how much you currently owe, and what your credit limit is on each active account.
Each account will also feature a notation that includes a letter and a number. The letter in the notation is either an “R”, meaning revolving or reoccurring debt, or an “I” which refers to an instalment account. The numbers range from 0 (a brand new debt which is too new to rate) to 9 (placed for collection or bankruptcy). Your goal is to maintain as many R1 ratings as possible. This means that you pay your bills within 30 days, or “as agreed.”
Any company that’s considering granting you credit, be it a mortgage lender or a phone service, has the ability to review your credit report and assess whether or not you’re a financial risk.
How Do You Build Credit?
More than 21 million Canadians have an active credit report. This also means that more than 21 million Canadians have applied for a credit card or some other form of personal loan. Borrowing money or purchasing items on credit is the only way to build your rating, but be careful. Failure to adhere to the terms of your loan or credit card will damage your score.
How Can I Get a Copy of My Credit Score or Credit Report?
Canadians can ask for a free copy of their credit report by mail. Currently, there are two credit bureaus in Canada that manage credit reporting: Equifax Canada and TransUnion Canada. Complete details on how to order your credit reports can be found on the website of either company. Basically, all you need to do is send them photocopies of two pieces of identification, along with basic background information about yourself.
If you need to access your credit report quickly, you can pay to access your file online. TransUnion charges $14.95 for an online report. An Equifax Canada report will cost you $15.50. If you’re looking for your credit score, expect to pay slightly more. Equifax charges $23.95 to instantly access a credit score; TransUnion charges $22.90.
What Happens if There are Errors in My Report?
If you find an error in your credit report, (such as credit card accounts you never opened or bad debt that isn’t yours), make sure you contact the credit reporting company immediately. While errors do happen, large debts could be a sign of identity theft. The credit reporting agency will provide you with the necessary forms to file a complaint and investigate the incorrect entries. If the item is not changed to your satisfaction, you have the right to include a brief statement that details your side of the situation.
The moral of the story? Review your credit report regularly, even if you’re not in the market for a mortgage. A simple check of your credit history will help you stay on top of your finances and alert you to any errors.