What Your Credit Score Means and How to Make it Work for You

by Todd Race

My credit score? What’s that?

Quick, what’s your credit score? And when is the last time you checked it?

If you’re like most consumers, you don’t know what your credit score is, what it means, or even how to find out about it.

And yet, your credit score determines so much about your financial life. A good credit score can help you get the car loan you want, the mortgage you need, or the extension on your line of credit you are hoping to get. A bad credit score could do just the opposite.

Credit scores are calculated and maintained by credit bureaus who collect information about your credit and financial history. What they find in your financial history will determine your credit score. Companies you want to borrow from will use that score to help decide if you are a good credit risk. It will be part of what they use to decide whether to grant you credit and what kind of interest to charge.

Who are these credit bureaus?

There are two main credit bureaus in Canada:

  • TransUnion
  • Equifax

Lenders use the information they get from the credit bureaus. But they can only do this after they get your permission. And they aren’t the only ones who can also ask for the information that has been collected about you.

Why do I want to know my credit rating?

You may want to contact these credit bureaus to:

  • find out what your credit score is
  • make sure the information they have on you is accurate, and
  • decide how to maintain or even improve your credit score going forward

We’ll talk about how to get a copy of your own credit report a little later on.

It’s not just one number, and it changes – what good is that?

It’s sort of like your IQ. Stay with me on this…

In fact, your credit score is a lot like your IQ score, another number assigned to you that you may not be sure of or what it means. You know that a higher IQ is better.

According to Alan S. Kaufman, clinical professor of psychology at the Yale University School of Medicine, if you:

“Take different IQ test(s), then the range is even wider because different IQ tests measure slightly different things.”

and

“(W)hile there is no single IQ – it’s a range of IQs – you can still pretty much determine whether a person is going to score roughly at a low level, or an average level, or a high level.”

5 Experts Answer: Can Your IQ Change?

Sound familiar?

So your credit rating can change, and it’s important, but it *isn’t* everything

When a lender considers your credit risk, your credit score is just one part of their consideration. So, while it’s important, it isn’t everything. And minor differences between scores will probably not have any impact on your application. Your lender, your credit unions representative (you are a credit union member, right?), and your financial advisor can all help you with that.

Okay, so I want my own credit report. Now what?

There are lots of ways to get your credit report and find out what your credit score is. And as you can see, it’s a good thing to know.

And because it could be different at each credit bureau and can change over time, you will want to keep an eye on it – see if and how it changes.

TransUnion and Equifax each give you the option to get your report (and your score) by mail, in person, or on the phone. Just make sure to include the identification they need to verify your identity.

If you’re interested, you can even ask for monthly updates on your credit score and your credit report at both Equifax and TransUnion. Just be prepared to pay for it. While occasional inquiries are free, monthly updates are not.

The federal government recommends that you first ask one bureau for a credit report and the other six months later. You can do this on an annual, ongoing basis. This way, you can keep updated on how your credit score is holding up and how each bureau is handling your information. And this way it’s free.

I got my credit report. Why should I ask again?

You might find out when you ask for your credit report that someone else is trying to use your identity or that there is a mistake in it somewhere. By checking regularly, you can catch and fix things early. Both Equifax and TransUnion allow you to fix mistakes and stop fraud identified in your report.

What does the credit score tell me?

Credit scores are used to quickly indicate how good a credit risk you are. These scores are set anywhere between 300 and 900. Generally, a credit score of 660 or higher indicates that you are a good credit risk to the lender.
This score is determined by looking over your past credit history. If you already have credit cards, lines of credit, or loans that you are handling well, help boost your credit rating. Paying regularly and not missing payments are two major ways to keep your credit score in good shape.
If you apply for credit frequently, this can bring your credit rating down. So, only apply for credit when you really need it. Applying for another credit card while you’re in the grocery store is not always a good thing. Trust me…
This is where you can get in trouble if somewhen else is using your identity. Even if you aren’t being made responsible for debts other people are collecting, they are using your identity even to apply will drive down your score.

How can I keep my credit score or make it even better?

Now that you know what your credit score is, you can do things depending on how you feel about it.

If there are problems with or errors in your report, ask to get it fixed.

If you’re pleased with your credit score, you probably need to keep doing what you’re doing. And check on it every once in a while. Done annually, six months apart for each agency, is probably a good rule of thumb.

If you’re not pleased with your credit score, then you may need to start paying down and consolidating your debts. This may not be easy, but your credit union representative or financial advisor can probably help.

Okay, now what should I do?

Your credit report and your financial well-being are ongoing concerns. Take them seriously. Get informed. Stay informed.

And, if you aren’t already a credit union member, look for a credit union in your community. They can help you with all your financial needs – credit, insurance, savings, loans, mortgages, and retirement planning. Besides, they’re amiable people and members of your community.

And a credit union is the kind of place where you’ll soon figure out that “everybody knows your name.”