Why is Your Credit Score Important?
You probably think school and perhaps work are the only places where you will be graded and scored for performance. Not true. In fact, we go through life being scored and graded for our financial performance. It’s called a credit score and it affects our life more than we may realize.
A credit score is kept on anyone who has received a credit card or a loan. Your credit report is administered by credit bureaus—companies like Equifax and TransUnion—who collect information about you and provide it to potential loan lenders, employers, landlords and more. This report allows a company or lender that is considering granting an individual a loan to assess one’s ability to pay the money back.
So, if you have a credit card—and close to 90% of adults in Canada have at least one—you have a credit score on file. In 2016, the average number of credit cards per Canadian adult was 2.2. In other words, borrowing is very prominent in Canada, yet many us have a limited understanding of how credit scores can impact our lives.
Why is your credit score important?
1. Easier loan approvals
According to Equifax, a score above 660 will usually mean smooth sailing when it comes to applying for a typical loan, while anything under 660 might mean some obstacles.
When you know your credit score, there'll be no unpleasant surprises when you apply for something like a mortgage, car loan, or credit card. You'll have some idea of the amount you can get approved for and what your interest rates will look like.
Furthermore, inquiries account for 10% of your credit score. Every time you apply for a loan a credit check inquiry is sent to the credit bureau. Frequent inquiries on your report can lower your score. When you know your credit score, you'll be more selective about what loan products you apply for because you'll have a better idea of whether or not you'll get approved.
Did you know: There are trusted online lenders that help borrowers with lower credit scores. Canada Drives works with applicants who have less-than-perfect credit to find affordable vehicles and easy auto financing. With on-time payments, our loans will even help you raise your credit score!
But besides the roadblocks that come with loan approvals and getting the best interest rates, there are other reasons why it’s important to know your credit score and make sure it’s in good health...
2. Employers check credit scores
Polish up that resume and cover letter, but keep in mind that more and more employers are checking credit scores of potential candidates as a factor in their hiring decision. Does that seem fair? Should a delinquent payment on a credit card from years ago affect your ability to get a new job? The cold reality is your credit score is an unbiased view of your past and present financial health, and an employer can use this to make a judgement about your character.
In fact, it has been reported that somewhere around 60% of employers (especially those that work in finance) will check a potential employee’s credit before they finalize a hiring decision. In this instance, having poor credit can hinder you from obtaining your dream job.
Remember: you can lie on your resume, but unfortunately you can’t lie on your credit score, so don’t let a bad credit rating be the reason you were denied a great job.
3. Landlords check credit too
With a housing crunch in Canada’s major cities like Vancouver and Toronto, rental applicants need every advantage they can get. The competition is stiff, and landlords usually have the benefit of being choosy about who they want to rent properties to. That’s why you don’t want to be held back because of a poor credit rating.
Landlords and some rental companies will require a credit check, as well as verification of income, before allowing you to take over a property. You have to consent to this credit inquiry by the landlord, but as a hopeful applicant, you’re unlikely to be in a position to say no. If the landlord sees a history of missed payments, for example, they are going to deem you a risk and give the vacant property to another applicant. Keeping your credit score in positive territory will make it less likely that a landlord will deny you that apartment, condo, or house.
4. A good credit score means better interest rates
If you have good credit, you can expect lower interest rates and better options. While it is possible to get approved for a loan with bad credit, you should expect to pay higher interest rates than someone who has good credit. This is because lenders will charge a higher interest rate to offset some of the risk you pose as a borrower.
If your credit improves, you should consider refinancing your loan. This is because both prime and non-prime car buyers can benefit from more favourable interest rates if their credit score improves. What may seem like a small percentage decrease can save thousands of dollars over the course of several years.
How to check your credit score for FREE
Borrowell has one of the easiest ways to check your credit score for free in 3 minutes. You can monitor your credit score, track changes monthly, and they'll give you recommendations on how to improve your score. This kind of credit check will not hurt your credit. Simply sign up with a few quick details and you’ll be examining your credit report within a few minutes!
Favourable outcomes for a lot of things in life are heavily dependent on maintaining a good credit score. By knowing your credit score you will be able to determine your overall health and start making the necessary steps to raise it.
It's important to know your credit score and work on raising it if necessary. There are short-term and long-term measures you can take to improve it. Check out this quick guide on how to improve your credit score in canada.