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3 Surprising Things You Need to Know About Credit Scores

Like it or not, you and your credit score are in a lifelong relationship. And that means that how you treat your credit reflects back on you, which can help or hinder you in the future. Here are three things to know about your credit score.

  1. Credit scores are sensitive

According to a recent Capital One study, only around four out of 10 Canadians know their credit score.

That implies that many Canadians feel comfortable with their credit score, and think that it’s well protected and in good shape.

But credit scores are sensitive, and you could be lowering your score without realizing it. Missing a payment or two on a loan or credit card, being late with a payment, or only making minimum payments might not seem like a big deal, but they could all impact your credit score negatively.

Another interesting finding: Only 21 per cent of those surveyed do regular credit report checks.

If you aren’t checking it, you might miss the red flags that indicate you’ve been a victim of fraud or identity theft. If you — or someone else — is managing your credit poorly, it could take years to rebuild a good credit score.

Here are some myths about credit scores from My Money Coach that will light a financial fire under you to help you manage your credit score even better.

  1. Credit scores can be affected by more than one person

Shared debt affects your personal credit score. And since 35 per cent of Canadians rarely (or never!) talk to their partner about finances, your credit score could be at risk.

Co-signed loans and lines of credit, shared credit cards, and mortgages, are examples of common ways debt is shared and credit is impacted. Missing a single payment, or being late for a payment, can easily happen. But that simple mistake could impact your credit and your partner’s. And if you’re separated or divorced but still have shared financial responsibilities, your borrowing and debt repayment behaviour will continue to impact one another.

You might be surprised to learn you’re considered a risk to lenders, or, you might be denied a good interest rate.

  1. Credit scores like the “rule of 35”

Have you heard of the “rule of 35”?

Simply put, it suggests that you should keep your in-use credit below 35 per cent of your maximum limit (the amount of your available credit that you’re using at any time is referred to as your credit utilization ratio).

When you use more than 35 per cent of your existing credit, you can be flagged as a higher risk to lenders.

Imagine for a second your total available credit on a credit card or line of credit. Can you remember a time you’ve maxed it out, or gotten close? It probably isn’t that hard to imagine, especially since many Canadians have high consumer debt and big living expenses.

Saving more each month to pay cash rather than using credit is one way to keep your total credit usage lower and improve your credit score.

Stephen at How To Save Money gives you a dozen ways to raise your credit score!

Think of your credit score as your financial temperature…for lenders, it’s a way to gauge your financial health and determine if you’re reliable. Take good care of your credit, borrow and repay your debt efficiently, and have regular “check-ups” (check your credit report!) to keep your finances in good health.

Do you limit your borrowing to keep your credit score healthy? Tell us on Twitter. #CreditScore #PersonalFinance #MoneyManagement

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