In our second installment for Financial Literacy Month, we are going to address the basics for young adults in Canada heading out into the world about establishing and maintaining a good credit rating.
Your credit rating is a mysterious thing, if you let it
be. However, all it is really is an accumulation
of data by two large companies – Equifax, and Trans Union. These companies are competitors, and while
many banks and creditors use both, there can be variations between your two
separate credit bureaus with these companies.
We are going to assume for the purpose of this article that
you are just starting out, and need to establish yourself, so let’s get
started.
You won’t have a credit rating unless you provide
information to one of the credit bureau companies -- they don't know you exist yet. However, this changes if someone does an inquiry on
you – that means, if you fill out a credit application at Walmart, the information
you provide on that form will be uploaded to one or both of the credit bureaus, and now you have a credit rating (although there won't be much there yet).
Who can do an inquiry? It can be a bank, a landlord, credit
card company, or even a potential employer. When you fill out an application with these groups, there is often some small print at the bottom that tells you that your information will be sent to the bureaus.
A good way to establish a credit rating as well if you become a consignor
or secondary card holder on a credit card, and your identity would be
established there as well.
Remember, that any one who does an inquiry on your bureau
will show up as well – make sure you don’t apply constantly for credit, as it
will harm you in the long run.
What most people think of as their credit rating rests with
their trade items – the items that report once a month showing your habits of
payments – whether they are on time, you maintain a balance, and what your
credit limits are. It’s often hard to
get your first trade item (as you have no existing pattern of borrowing with
any other trade items – ironic, isn't it?).
However, you can establish a trade item is get a parent or spouse to add
you as a consignor on an existing credit card or other trade item, or purchase
a pre-paid credit card that reports to the bureau.
One option for a pre-paid credit card is Home Trust’s Visa. They are especially good because they report as a trade item. Their information page can be found here:
What Does My Credit
Rating Look Like?
Your credit rating has a couple of sections – personal information,
employment, trade items, registered items, judgments, bankruptcies, collection
items, and inquiries. There may also be
alerts or messages as well.
Things to avoid on your credit bureau are frequent address
changes, trade items not paid on time, collection items, judgments, or frequent
inquiries – be careful in your financial habits!
If you want to see an example of what a credit rating looks
like, Trans Union has a guide book that has an overview of the sections and
meanings:
People will often refer to your Credit Score, which is an
abstract number assigned by Equifax or Trans Union. To understand how your credit score is
calculated, we would refer you to this excellent article at My Money Coach’s
website.
Get A Copy of Your
Credit Bureau
The most important thing is to keep an eye on your credit
bureau – mistakes can appear there, identities can be stolen, and items can be
reported to the credit bureau without the consumer’s knowledge. Always ask for a copy every year from both
credit bureaus for your records. You can
do so for free at the following links:
http://www.equifax.com/ecm/canada/EFXCreditReportRequestForm.pdf
A good credit bureau takes years to build, and moments to
destroy. Understand that your actions
have an impact on your ability down the road to buy a house, receive a car at a
fair interest rate, or even become hired for a job. Get a copy of your credit bureau, and have a
plan to build it and maintain it.
If you want more information about financial literacy, the
Financial Consumer Agency of Canada has more resources available for Financial
Literacy Month here:
As well, if you are in the
Cambridge/Kitchener-Waterloo/Guelph area and would like to attend a free credit
workshop where we cover this topic and more, as a service to the community, you
can find information here:
If you have any questions about contracts, or would like more
information to help you learn about your finances, feel free to contact
myself. My direct line at Kingston Data
and Credit is 226-444-5695.
Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
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