If you have ever had a credit card, taken out a mortgage, or had student loans, you will have a credit history, and a credit rating. Whenever a financial institution such as a bank extends you credit, it will send information about your payment activity to a credit bureau.
Credit bureaus collect information about you and how responsible you have been about paying back money you have borrowed. This information is called your "credit history", and is used to determine your credit rating, which is basically an assessment of your "creditworthiness", or your ability to meet your monthly debt payments. When you want to borrow money in the future, the lender will check with a credit bureau to see if you have a good credit rating.
If your credit rating is poor, potential lenders may refuse to give you a loan, or may only lend you money at a higher interest rate.
"Your credit rating can greatly affect your ability to get financing for things that are important to you, such as a mortgage or a car loan," says Christina Panay, vice president of credit cards at TD Canada Trust. "It can even affect things that you might not have considered, like your ability to simply rent an apartment."
Panay offers her five top tips to help you maintain your credit rating:
• Always make your credit card bill payments on time. Double check that you're paying an adequate amount (at the very least the minimum payment required).
• Limit your number of credit applications and don't overextend yourself. When your credit report is looked at by a prospective lender, it can affect your ability to get credit for a period of time afterwards (note that reviewing your own credit report does not negatively affect your credit score).
• Don't ignore overdue bills. If you encounter any problems repaying your debt(s), call the creditor(s) to make repayment arrangements. Many will be flexible if you tell them you are having difficulty.
• Keep your outstanding debt as low as you can. Continually extending your credit, or getting close to your limit, is viewed poorly by lenders and can drive down your credit score.
• Remember that good credit is not built overnight. A longer history of good credit is favoured over a shorter history.
