A few weeks ago, we had an article regarding credit score, and how it’s determined. To reiterate, credit score is an extremely important aspect of your financial health, especially here in Canada, where so much depends on your credit score. This week, we’ll be discussing the real-world effects of credit score. How exactly is your life affected by that simple little number? Before we get started, if you haven’t read part one of credit score, or would like a refresher on how your credit score is determined, you can take a look at the article here.
Credit scores can come in a very wide range, and it’s determined by 2 major credit institutions: Equifax and Transunion. These 2 companies collect a LOT of information on you from a variety of sources in order to determine your credit score. It can range anywhere from 0 to 850 or 900, depending on which credit institution we’re talking about. So, how does your credit score affect you? For the purposes of this article, let’s go with Equifax to explain that.
You either have no credit score, or your credit score has been hit very hard in the past, perhaps by a bankruptcy or some sort of fraud. With a credit score in this range it will essentially be impossible for you to obtain any kind of loan. Landlords will probably turn you down because they often do credit checks on prospective tenants, and you might even have trouble opening up a phone account. You should talk to someone who can help you with your finances or credit right way
You’re still considered a high-risk customer, which makes the interest rates offered to you a bit higher than average credit-rating clients. The additional increase on the rate can be anywhere from 3% to 10%! In addition, you may be asked to provide security such as when you want to apply for credit cards. This means that banks may ask you to keep $1,000 in an account as security before letting you have a credit card. This sort of credit score is often caused by repeated late payments, and poor awareness of credit management. A reputable financial professional may be able to help you get on track.
Your credit score is around the average. Which is actually pretty good! Your credit score should not cause you too many problems when it comes to obtaining loans or other forms of credit. Whatever it is that you’ve been doing, keep doing it! The only thing you’ll have to watch out for is to avoid developing bad habits.
This is an excellent credit score; Congratulations, your credit score rocks! Any number above 750 is considered an excellent credit score, allowing you easy access to credit and categorizing you as a prime customer. Lenders will be happy to loan you money and you can actually use this to your advantage by negotiating with lenders for better rates! You’ve got (your credit score) made!
One last bit of advice is that when it comes to obtaining loans and credit, credit scores are an important factor, but they’re not the only factor. In addition to credit score, banks and other lenders may look at other qualifications such as your income and your assets. To get the best idea of your overall financial health, it makes a lot of sense to talk to a financial advisor who can offer a holistic analysis of your situation.
Finally, to see a real example of how credit scores can affect your interest rate, take a look at our handy interest rate estimator, where you can adjust the credit score range and loan amount to see how having a high credit rating can potentially save you quite a bit of money!
Finjoy Capital is not a financial advisory firm.
This article is for informational purposes only and is not a substitute for individualized professional advice.