Your Debt Solutions Experts
BDO Mississauga

1 City Centre Drive
Suite 1040
Mississauga, Ontario
L5B 1M2

(905) 615-8787

Credit Score 101: Here’s What You Need To Know

You may have heard the term before. You may even have a vague idea of what it is and how it’s used. But, when it comes down to it, do you really know what your credit score is and how it can affect you?

Statistics show that many Canadians carry misconceptions about their credit, including what their credit score actually is and how it is calculated.

To be fair, there’s a lot to know about credit in general and it can, at times, be more than a little confusing. However, understanding your credit score is the key to building financial balance and maintaining financial health. To help you better understand your credit score, here are a few things you need to know:

1.) A credit score, credit report and credit rating are not the same thing

Your credit score, credit report and credit rating are not the same thing, although they are somewhat similar. Your credit score is a three-digit number that signifies your financial health and your overall lending ‘risk-level’. Determined by looking at a variety of factors in your credit report — a detailed report about all your credit history, your credit score takes into account your overall level of debt, use of credit and timeliness in repaying your loans. Your score ranges from 300 to 900 points, 900 being the best score anyone could get.

Your credit rating, in comparison, is a rating of each of your credit history items on a scale of 1 to 9. A rating of 1 tells lenders that you repay your loans within 30 days of the due dates, whereas a rating of 9 indicates that you have either filed for personal bankruptcy or your debt has been sent to collections.

2.) It’s a good idea to check your credit score and your credit report

If you haven’t checked up on your credit score in awhile, it may be a good idea to check it out now. After obtaining your score, you may be surprised to learn that it’s lower than you thought. Unfortunately a low credit score can affect more than just your ability to borrow money in the future. In fact, a low credit score can also affect your ability to rent an apartment and your ability to get hired.

You may also want to check your credit report from time to time as it can tell a lot about your financial health, including whether you have been the victim of identity theft. When reviewing your report, look for inconsistencies and anomalies, including errors in your name and personal information, as well as accounts that you never opened. These types of anomalies could mean that identity theft has taken place and if that’s the case, you’ll want to take the necessary steps to fix your report.

3.) Improving your credit score takes time and dedication

The good news is that if your credit score is a little lower than you’d like, there are steps you can take to improve it, but it may take some time and dedication. You’ll need to commit to things like repaying the debts you owe, paying all your bills in full by the due date and reducing your use of credit in order to make it happen.

If you’ve recently filed for bankruptcy or filed a consumer proposal because of overwhelming debt, it’s important to make a plan to rebuild your credit. Your Licensed Insolvency Trustee (LIT) will help you throughout this process to create a plan and get you back on track.

Are you in the dark when it comes to your credit score? How do you plan to get back on track? Join the conversation and share your thoughts with us via Twitter and Facebook. #DebtSolutions

Book a Free Consultation