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How to build and maintain your credit history.

Your students know the importance of working hard to get good grades. The higher their grades, the better their chances will be at securing their post-secondary institution of choice.

The same basic principle applies to building and maintaining your credit history. The higher your credit score, the better your credit history—and the greater your chances at securing the loans you need for large purchases such as a new home or vehicle.

In order to build and maintain your ‘good grades’ when it comes to your overall credit history, there are three keys steps you can take.

STEP 1: Review and understand your credit score.

You can obtain/review your credit score by contacting either of the two major credit reporting agencies in Canada: Equifax and TransUnion.

To better understand how the scoring system works, think of your credit score as your final grade on the subject of your personal finances—except instead of an A+ or B-, your credit score consists of three digits between 300 and 900.

Here is how the scoring system works:

 

CREDIT

SCORE:

 

 

 

300 – 559

 

 

560 – 659

 

 

660 – 724

 

 

725 – 759

 

 

760+

 

QUALITY:

 

 

Poor

 

Fair

 

Good

 

Very Good

 

Excellent

STEP 2: Always strive for the best credit rating.

Different from your credit score, each account (i.e. every credit card, loan, etc.) listed on your credit report will be assigned a ‘rating’. The rating is a single number between 0 and 9 and reflects the current payment status of each account (and here’s a hint: you’ll always want to strive to be number 1—literally).

Here is what each of those ratings mean:

 

RATING

 

 

DESCRIPTION

 

0 

 

Account exists, but there’s been no recent activity (in order to be rated)

 

1

 

 

Account is paid/up to date (this is the rating you always want to have)

 

2 to 5

 

 

Not considered ‘bad debt’ yet, however account payment is overdue (rating will increase from 2 to 5 depending on how long overdue)

 

 

6 to 7

 

 

Payments are being made through a third-party program

 

8

 

 

Repossession or foreclosure of collateral

 

9

 

 

Bad debt—account is now in collections

STEP 3: Keep good habits when it comes to your credit.

Just as ‘always doing homework’ and ‘studying for tests’ are good rules of thumb for your students to follow to maintain good grades throughout their school career, there are certain good habits you can get into in order to always keep your credit score high and your credit history problem-free.

    1. Always make the minimum down payment: While it’s ideal to pay the entire balance off every month (as having credit with a zero balance can help you maintain a higher credit score), sometimes it isn’t financially feasible. Ensuring you at least make the minimum payment on each of your accounts each month will keep your credit ratings in the number 1 position, which will then have a positive ripple effect on your credit score and overall credit history.
    2. Don’t be late (or skip out) on making payments: This tip is self-explanatory. Repeatedly being late on your payments will reflect poorly on your credit report and bring down your overall credit score.
    3. Don’t max out your credit limit: Remember, just because you have a $5,000 limit—doesn’t mean you have to charge that amount to your card. Maxing out your card(s) will affect your credit score and not in a good way (stay under 75% of your available credit to maintain the highest credit score).
    4. Review your credit report once a year: An annual review of your credit history will ensure that your credit score and ratings accurately reflect all of the information in your report. If you spot errors or false claims, you can then take steps to resolve these by filing a ‘Dispute Resolution’ through TransUnion or Equifax.
    5. Protect your credit information: Identity thieves continue to look for resourceful ways to get hold of your credit information—particularly online. To prevent this from happening, be sure to always keep your passwords and PINs secure (i.e. never share them with anyone and don’t have them written down where someone could easily find them). If you’re accessing accounts and personal emails/information on a mobile device or public computer, be sure to use the ‘private’ browser function (which does not keep a log of viewed/accessed web pages) and always clear the browser history. It’s also a good idea to change your passwords and PINs every 6 months.
    6. Don’t let your credit accounts fall into collections: Any accounts that fall into collections will remain on your credit report for a period of 7 years from the date of the last activity. This may prevent you from being able to obtain any further type of credit or loan during this timeframe.

Have no credit or bad credit? There are steps you can take to build or rebuild your credit score.

When you’re just starting out in life or recovering from bad credit or even a bankruptcy, it can feel like the road ahead towards building (or rebuilding) your credit is long, winding, and uncertain. But remember, just as the ancient Chinese philosopher Laozi so eloquently stated, “A journey of a thousand miles begins with a single step.”

The first step to credit building/rebuilding: apply for a secured or pre-paid credit card.

These types of cards can be used in the same way as a regular credit card, except the credit limit is set by how much money you can put down (for example if you put down $500 on it, your credit limit would be $500). These cards are easier to obtain because the lender isn’t taking any risks. Plus any activity on a secured card is reported the same as it would be with an unsecured card, so if you handle a secured card responsibly, you may eventually become eligible for an unsecured card.

Open a regular or high-interest savings account.

Showing that you can save money may prove to a lender that they can trust you with smaller limits to begin with on credit cards or lines of credit.

Get an overdraft allowance on your bank account.

An overdraft is kind of like a credit card or loan ‘in training’ as it’s extra money when you need it that then gets paid back as soon as you make a deposit. While it shouldn’t be used excessively, using your overdraft occasionally shows that you can be trusted to pay back what you owe.

Repay an account that has gone into collections.

If you have an account that has gone into collections and it becomes possible to start repayment, you should do so. This will show that you are serious about rebuilding your credit score.

Want to increase your literacy on the subject of ‘credit’? Bring one of our workshops to your school!

Credit Score 101 Lunch and Learn for Educators: In this 30-minute session delivered by an Educators Financial Group financial specialist, we’ll bring the food and the food for thought when it comes to understanding, protecting, and maintaining your credit score.

Financial Literacy Workshop for Students: In this interactive 30- to 60-minute workshop delivered right in your classroom by an Educators financial specialist, students will learn the importance of building a solid credit rating so they can better manage their finances.

To schedule a credit workshop for your school, call us at 1.800.365.9541 or click here.

 

 

The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.

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