Published: June 6, 2014 • Last updated: January 6, 2021 at 7:47 am
Important tips about your personal credit history
1. Your credit score changes all the time
You can check your own credit score at either Equifax or Trans Union’s website. The report will remain available to you online for a month – but remember, it is changing all the time, as new information is collected and sent to the reporting agencies from lenders.
The key to having a good credit score is to have, and responsibly use credit. Piling up debt isn’t responsible, necessary or smart.
2. The more available credit you use, the lower your score
That’s because credit-scoring formulas are extremely sensitive to how much of your available credit you’re using at any time, particularly on revolving accounts. So if you max out your credit cards or even come close, you’re likely to hurt your scores.
This is true, by the way, whether or not you pay your balance in full. The balance reported to the credit bureaus, and used in credit score calculations, is typically the balance from your most recent statement, before you sent in your payment.
3. Credit scores exist primarily for the benefit of lenders
Credit scores were designed to benefit lenders by helping them gauge the risk that you would default on a loan.
But that doesn’t mean the system has no benefit for individuals. Credit scores gave lenders the confidence to make credit more available — and make it cheaper for those with good scores. That means if you’re responsible with credit, you’ll pay less for a loan than someone who has been less responsible. You won’t have to cover the risk that the other guy will default.
4. You don’t need lots of credit facilities to have a good score
You can maintain a good credit score without ever paying any interest or carrying debt. You simply need to have, and lightly use, two or three credit cards, paying the balances in full every month.
It’s might even be easier to achieve a good score if you have a mix of credit: revolving accounts (credit cards) and installment loans (a mortgage, auto loan or student loan, for example).
5. Missed payments and problem accounts don’t just disappear
Anyone who takes on too much debt is likely to start missing payments. A single skipped payment can knock as much as 110 points off your score right after it happens.
Paying your debts doesn’t erase them from your credit history. The credit bureaus can continue to report negative information for up to seven years after an account first went delinquent.
6. True negative information cannot be erased from your file
You may be able to persuade a collection agency to delete a collection account from your credit reports in exchange for settling the debt. But you typically won’t be able to erase what the original creditor reports about you, which means that the information that’s most damaging to your credit scores — the skipped payments and charge-off that occurred before the account was turned over to collections — will remain on your reports for the full six years.
By the way, you shouldn’t fall for a credit repair firm’s pitch that it can erase true, negative information from your credit files. These companies often flood the bureaus with disputes, but the vast majority of those disputes go nowhere, and the negative information remains on your files.
7. Owing money is not a crime
Theft is a crime. Owing money generally isn’t.
Most people who owe debts they can’t pay didn’t start out intending to stiff their creditors. In fact, many people who struggle with debt wind up draining assets that would otherwise be protected from creditors, such as their retirement accounts.
Many of us believe that skipping out on a debt you can afford to pay is morally wrong. Throwing in the towel on debts you can’t pay, however, is sometimes the best of several bad options.
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One of Toronto/GTA's Most Trusted and Knowledgable Mortgage Agents
Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.
With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.
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