Credit Reports

I was going to write about what a credit report is, what information it contains and how to improve your score, but there are a plethora of websites that will provide this information.

Equifax and Transunion are the two credit reporting agencies in Canada. They provide a good place to start to learn about your credit report and score.

What I do want to write about is the importance of a good credit score. When you go to the bank for a loan they will check your credit score. A good score will mean the bank will be taking on less risk as you have a good history of paying your debts. Less risk means a lower interest rate and you save money. Now if your score is less than perfect you are more of a risk and the bank will calculate that into your interest rate. This will cost your money with a higher interest rate or you may be denied credit.

What are the potential costs of of having bad credit? I will use a mortgage as an example. Good credit will mean you get the best rates and you can qualify for a mortgage with no down payment. Bad credit could mean you would have to come up with a big down payment and your interest rate would be much higher.

Comparing a $300,000 mortgage with an amortization period of 25 years you will pay $163,448 more if you pay 8% rather than 5%.

All you really need to do to have good credit is pay your bills on time. Ideally you will have 2 – 3 credit cards with $3000 limits and a current or paid off loan of some type.

I hate to stereotype, but don’t cause yourself credit issues by “enjoying” yourself too much while you are young. It is a hole you don’t want to have to dig yourself out from.