How Do I Know If My Credit Is Good
I recently got married and I’m feeling secure at my company. I guess you could say two of my “big three” priorities are under control. Up next on the agenda involves buying a house – I’m sick of paying rent. I’m confident in my earning power but I feel pretty clueless about what my credit is like. I’ve had different levels of debt over the years, but I think I was good at paying things on time. Maybe I slipped here or there. How do I know if my credit is good?
Halifax, Nova Scotia
First of all, I’d like to congratulate on your marriage! You seem to be at a pretty stable point in your life and you’re absolutely right to be thinking about buying a house. Do your homework and if you find you’re able to handle the costs, you’ll enjoy the feeling of home ownership and building your equity.
As for your question, it’s a great one and many people share your confusion. Credit scores always seem to be a big mystery, but they don’t have to be. Knowing your credit score can help you make sound financial decisions and can also help you take action in case your score needs improvement.
It’s important to know what goes into a credit score. According to Fair Isaac and Co., there are five factors that go into your credit rating:
|Amount You Owe||30%|
|Length of Credit History||15%|
|Type of Credit In Use||10%|
As you can see, the two most important factors are payment history (have you paid your bills on time?) and the amounts you owe (how much debt do you carry?). They account for more than two-thirds of your credit score and are excellent places to start if your credit needs improvement.
But how do you know if your credit is good?
If you are patient, you can access a credit report in the mail for free from Canada’s two national credit bureaus: Transunion and Equifax. If you’d prefer instant information, you can pay $15 and get the report online. Your credit report summarizes your credit history; it contains information about your credit cards and loans, such as:
- When you opened your account.
- How much you owe.
- Whether you make your payments on time.
- Whether you miss payments.
- Whether you go over your credit limit.
If you’d like your all-important credit score, you’ll need to pay for it. Both credit bureaus offer an instant credit score for around $23. The credit score is a three-digit number that is calculated from the information in your credit report. It ranges from 300 to 900, with 900 being the top. It’s nearly impossible to have a perfect 900, but aim for the 700’s if you want better interest rates from the banks.
Once you’ve got your documents, have a look at them. Check for errors (with hundreds of millions of entries, the odds are against perfection) and challenge them. If you feel like your score is low, don’t worry, it’s not the end of the world. Focus on fixing your credit score, and over time, you’ll see improvements.
Jeffrey Schwartz is the Executive Director of Consolidated Credit Counseling Services of Canada and President of the Credit Association of Greater Toronto (CAGT).
If you have a question about a debt management program or just about finance in general, Jeff is here to help. Send us an email with your question to [email protected]. You’ll get the expert advice you need and your question may be featured here on our website.