Understanding Credit

                Understanding how credit works can be confusing. Unfortunately, schools don’t often teach us the importance of credit and how it can affect our lives. These lessons are usually learned by trial and error, often negatively impacting our credit rating. Your credit report follows you everywhere you go. The more you know about it, the more power you have to make decisions to help you get through life with less resistance. 

     
           So what is a credit report? Basically, it’s a measurement of how dependable and responsible you are with your money. Any time you get a credit card, loan, line of credit, mortgage, etc., you are establishing your credit score. Even having accounts with utility companies like Gas and Hydro, or cell phone contracts, are reflected on your credit report. In Canada there are 2 credit Bureaus that keep track of your credit reports; they are Equifax and Trans Union. You are given a score on your credit report based on how you use the credit available to you. Credit scores usually range from 300-900. How you handle your payments will determine whether you have a good credit score or a bad one. There are several things that are taken into consideration when looking at your credit report.  If you always pay the entire monthly balance in full and on time you are earning a higher credit score. The amount of credit available to you verses the amounts you owe is taken into account. For example, if you have a credit card with a limit of $5000.00 and you have only used $2000.00 that has a positive impact on your score. Alternately, if you are maxed out on your card it can be negative. So, ideally you want to use a small amount of the credit available to you, andalways pay on time and in full, to have a higher credit score.             

Now, attached to borrowing credit is interest. Interest is another subject that can cause some confusion. When you borrow money a percentage is added to your total, this is basically a fee for borrowing. These percentage rates can vary based on different factors. Your credit score determines how much interest you will be charged; you will be rewarded for being dependable and responsible with a lower interest rate. When you first apply for credit you generally have to pay higher interest because you are higher risk to the lender. Once you can prove yourself to be reliable your interest rates can be reduced.  

It is not uncommon to learn about credit the wrong way, which means your credit isn’t in the best shape. Different situations in life can put you in difficult credit shape. Sometimes we have either made wrong choices when it comes to using our credit, or we have had certain life circumstances that have made our credit look bad. Going through a divorce is one of these situations that can ruin your credit rating. Also, just starting out in your adult life means you have no credit, either you have a low income job or you are a student. In these situations your goal should be to improve your credit score as much as you can if you want to have access to lower interest rates in the future. Improving your credit score before you apply for a loan could have a significant impact on your monthly payments as well as your ability to qualify for a loan.

The first thing you will want to do is find out what your credit score is. You can do this by contacting the credit bureaus in writing and requesting a copy of your credit reports. In Canada it is free to do this, Equifax and Trans Union both allow unlimited requests. You can also pay a small fee to have unlimited access on line if you want to have the ability to watch closely. Go over the report carefully; you can dispute any incorrect or outdated information in writing with each agency. Now that you have a realistic idea of what your credit looks like you can begin the process of building it. Be patient and persistent, it can take up to a year to improve your credit score. Be wary of companies that say they can repair your credit for a fee, credit repair takes time. Try and pay off the balance owing on any credit cards or loans, be sure to read the fine print and make sure there are no penalties attached to paying these off early. If you are not able to pay things off completely then pay as much as you can to avoid interest charges. Be diligent in making payments on time, this will build your score.

Our dealership provides long term finance plans to help you improve your credit.  These plans are designed to help those who are just building their credit, like students and people with low income, as well as those who are rebuilding credit after divorce or poor financial decisions. We have stepping stone financing, to help gradually bring your credit score up and your interest rates down. For those of you who have good credit scores our Banking Office has great financing with interest rates that can be lower than what your bank can offer. These finance options are specialized for auto loans, that is why we have access to them.  People are often afraid of options available at car dealerships, thinking they will automatically be subjected to unfair rates. We are here to tell you that is not always the truth. Our dealership wants to help you get the best rate available to you.  Because of this fear often people will choose to go through their bank for a loan or use a line of credit to purchase a vehicle. These options are not always best. Do your homework and compare what interest you will be paying from the bank verses what we can offer. Realize that your Line Of Credit is not intended for such purchases, these are put in place to protect you from unforeseen events. You really want to keep your line of credit open for other purposes.            

Whether you have no credit, bad credit, or good credit your credit rating is established by you.  You have the power to maintain or improve your credit score. Your main goal should be to show lenders that you are not a risky borrower. Do this by being responsible with your payments. It will be you who benefits in the long run. It may seem like a challenge but if you are consistent and determined you can have a healthy credit score.

-Muriel Rolufs