November was Financial Literacy Month in Canada, a time for all Canadians to focus on better management of our individual financial goals. Credit plays an important role in living a focused and healthy financial life. Having good credit will help you qualify for a loan, mortgage, or credit card.
If you have credit, you're assigned a credit score, which is a three-digit number between 300 and 900 that measures your creditworthiness. A high score is good whereas a low one is not.
Lenders use your score to determine whether or not they'll lend money to you and landlords will check your score to decide if they'll accept you as a tenant. Also, insurance companies and potential employers will sometimes look at your score.
How your score is calculated
There are two major credit reporting agencies -- Equifax and TransUnion -- that collect information from banks, lenders, internet and mobile phone providers, and other creditors to generate your score. The agencies collect information from these providers about how much you owe on each account, your credit limits, and if you pay your bills on time. This information is then used to create your score.
The agencies have proprietary scoring models and the way they calculate your score is a secret. But there are certain factors that can affect your score more than others:
What's a good score?
Having a good credit score can mean the difference between having your credit card application approved or denied, or getting the best mortgage rate. Here's a general guide to credit score ranges:
How to get your credit score
To get your credit score, you'll often need to pay a small fee to Equifax or TransUnion. But there are some reputable sites in Canada, including RateHub.ca, that allow you to get your score for free with no catch. However, beware of sites that'll give you your score for free but make you sign up for a paid service.
The bottom line
Your credit score is one way to measure your financial health. If you have a great score, you should ensure that it doesn't drop by making responsible financial decisions. But if your score is bad, you should take steps to improve it so you can qualify for lower interest rates and save money over the long run.
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