How often do you think about your credit score? I’ll admit, I’d never really thought about my credit score or rating until I went to get a loan for my car. I’d heard about credit scores and I knew that it was related to paying my credit card on time and paying back loans, but other than that, I didn’t know much. Luckily, I used my credit card sparingly and always made sure I paid the balance on time, so my credit rating was pretty good when I went to the bank. Fast forward a couple years and soon I’ll looking to get pre-approved for a mortgage and I’ll be judged based on my credit report, score and rating again. Since I’m going through the process of getting a credit report, I thought I’d do a couple posts about credit reports. Where better to start than credit reports, scores and ratings?
Everyone has a credit report (file), score and rating as soon as they get their first credit card. What’s a credit rating, score and rating?
- A Credit Report (or file) is a history of your credit. Lending companies and banks use credit reports to decide whether or not to lend to use based on your history with credit. Credit Reports contain information related to any existing or past lines of credit including credit/retail cards, lines of credit, loans or mortgages. They will also list whether or not you have a history of overdrawing bank accounts or writing bad cheques. It will also list whether or not you’ve ever declared bankruptcy or had debt collectors after you. A credit report will also list the people/organizations that have requested your credit information.
- Think of a credit score like a grade given to you by credit-reporting agencies, and the higher the better. Scores range from 300 to 900 and a higher score tells potential lenders that you have relatively good financial health. Often credit scores determine the interest rate associated with your loan.
- On a credit report, certain items may be given a rating from 1 to 9. A score of 1 means that you pay your bills within 30 days of the due date. A 9 means you don’t pay your bills. The lower the credit rating the better. There’s also a letter component to your rating that denotes the type of rating. I stand for credit paid back in regular installments (so, like most car loans), O for open credit (like lines of credit where you borrow what you need to a certain point, then must pay back the money after a set period of time), and R for revolving credit (like a credit card).
Next post – Getting your credit report.
Have a good ‘ un